The PMI Group, Inc. (



Q1 2011 Earnings Call

May 5, 2011 12:00 PM ET


Bill Horning – VP, IR

Stephen Smith – Chairman, President, CEO and COO

Donald Lofe – CFO, EVP and Chief Administrative Officer


Douglas Harter – Credit Suisse

Donna Halverstadt – Goldman Sachs

Scott Frost – Banc of America – Merrill Lynch

Matthew Howlett – Macquarie

Ed Groshans – Height



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» The PMI Group, Inc. Q1 2010 Earnings Call Transcript

Hello and welcome to the First Quarter 2011 Financial Results Conference Call for the PMI Group. (Operator Instructions) Today’s call is being recorded. If you have any objections you may disconnect at this time. Now I will turn the meeting over to Mr. Bill Horning, Vice President, Investor Relations. Sir, you may begin.

Bill Horning

Thank you, and good morning. Welcome to the PMI Group’s First Quarter 2011 Financial Results Conference Call. Today’s call will begin with comments from Steve Smith, PMI’s Chairman and Chief Executive Officer. Mr. Smith will discuss PMI’s overall financial results and other matters for the first quarter. After the prepared remarks, Steve along with Don Lofe, PMI’s Executive Vice President, Chief Financial Officer and Chief Administrative Officer, along with David Katkov, PMI’s Executive President and Chief Business Officer will be available to answer questions.

On today’s call we will be referencing non generally accepted accounting principal measures such as net operating income, which under SEC Regulation G we are required to reconcile to GAAP. These reconciliations of these measures with GAAP financial measures are available on our website.

Before we begin I would like to read the company’s Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. During this call we will be making forward-looking statements. Actual results may differ materially from the statements made during this call. The company’s business depends on investment considerations, which are highlighted in our Securities and Exchange Commission filings including our 2010 Form 10-K.

Forward-looking statements are made as of today May 5, 2011 and we undertake no obligation to update such statements except as may be required by law. Also, I’d like to note that for those interested in a reconciliation of our consolidated net loss to our consolidated net operating loss, to review the disclosure material posted on our website. At this time I will turn the call over to PMI’s Chairman and Chief Executive Officer, Steve Smith.

Stephen Smith

Thanks, Bill. Good morning, everyone, and thank you for joining today’s call. In the first quarter the PMI Group had a net loss of $126.8 million or a loss of $0.79 per share. This compares to a net loss of $157 million or $1.98 per share in the first quarter of last year.

Our results were driven by net loss of $136.3 million in our U.S. Mortgage Insurance operations, which had losses and loss adjustment expenses or LAE of $239 million. Now starting with our U.S. Mortgage Insurance operations, let me provide an overview of our new business writings and credit trends.

In the first quarter our U.S. Mortgage Insurance operations wrote approximately $1.5 billion of new insurance, a 53% increase from the $1 billion of new insurance written in the first quarter of 2010. Also CMG Mortgage Insurance Company, our credit union joint venture with CUNA Mutual wrote approximately $600 million of new insurance written. During the year we expect some improvement in purchase money mortgage activity, as well as gradual increases in the penetration rate for private MI.

PMI’s market share inclusive of CMG was 15.7% in the fourth quarter, which compares to 11.1% in the same period one year ago. While the first quarter data is not yet available, we believe our combined market share remained in the mid-teens. Therefore, we expect our combined PMI and CMG new insurance written to total $9.5 billion to $12 billion for the full year 2011.

Now moving to credit trends in the first quarter, we continue to see improvement with lower levels of new delinquencies and decreasing delinquent inventory. This is driven by the decline in new delinquencies from policies originated in 2006 and 2007, which we believe have peaked. Additionally, we now believe that the delinquency development from the 2008 book year has also peaked.

Furthermore, the subsequent books of business written in 2009 and 2010 are of high credit quality and are generating very few new delinquencies. For example, for book year 2010 we only have 34 defaults from approximately 29,000 policies in force. These two books of business are expected to produce on equity in excess of 20%.

Primary notices of default or NODs received in the first quarter totaled 24,754, down 28% from the first quarter last year and almost 14% from the fourth quarter. In the first quarter of 2011 we had 25,540 cures, which although larger than the number of new delinquencies, was below our expectations.

While we were pleased to see an increase in natural cures in the first quarter, our workout retention cures, which include HAMP and non-HAMP modifications as well as payment plan cures, were 5,644, representing approximately 258 million of delinquent risk enforce. This was below the 7,710 workout retention cures and 345 million in delinquent risk enforce reduction in the fourth quarter. Through our own Homeownership Preservation Initiatives, and our services efforts, we believe there are opportunities to increase these numbers.

As of March 31, 2011 approximately 18,800 of our delinquent loans went into retention or forbearance workout. This represents 16% of our delinquent loans. Total claims paid were approximately $205 million in the first quarter, which is down 23% sequentially and down 25% from the first quarter of 2010.

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