<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 20, 1999
THE PMI GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-13664 94-3199675
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
601 Montgomery Street, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (415) 788-7878
___________________________________________________________________
(Former name or former address, if changed since last report.)
<PAGE>
Item 5. Other Events
On January 20, 1999, The PMI Group, Inc., announced its fourth quarter earnings
and financial results for the period ended December 31, 1998. A copy of the
Company's press release dated January 20, 1999 announcing such earnings is filed
as Exhibit 99.1 hereto and is incorporated herein by reference.
On January 20, 1999, during the fourth quarter earnings conference call with
analysts management indicted that it believes, based on current estimates, that
the reduction in required MI coverage levels recently announced by Fannie Mae,
if also adopted by Freddie Mac is expected to reduce PMI's earned premium by
less than 1% in 1999. Management stated that it believes, based on current
estimates, that if Freddie Mac does not adopt Fannie Mae's proposal, the impact
on 1999 would be significantly less. Management stated it believes it is too
early to make any statements on the impact of the Fannie Mae proposal and/or a
proposal by Freddie Mac beyond 1999. Management indicated it believes the
Fannie Mae proposal should affect the structure and viability of certain captive
reinsurance arrangements, generate industry pressure for increases in contract
underwriting fees and cause a decline in the use of pool insurance in 1999.
The statements described above and other statements made during the fourth
quarter earnings conference call with analysts regarding the Company's outlook
for years 1999 and 2000 that are not historical facts, and that relate to future
plans, events or performance are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements involve a number of risks or uncertainties including, but not limited
to, the factors listed below that could adversely affect PMI's actual results.
Factors that may materially and adversely impact PMI's results of operations,
earnings, and financial condition include the size of the mortgage origination
market, mortgage insurance industry volumes of new business, greater than
anticipated policy cancellations or lower than projected persistency resulting
in declines in insurance in force, the failure of mortgage insurance commitments
to convert into new insurance written, the impact of competitive underwriting
criteria, products including pool insurance and risk sharing structured
transactions, regulatory responses to product offerings, changes in the
performance of financial markets, PMI Mortgage Insurance Co.'s claims-paying
ability rating, the demand for and the acceptance of mortgage insurance
products, decreased profit margins on mortgage insurance products, the impact of
expanded financial remedies provided to contract underwriting customers, changes
in government regulations or interpretations regarding the Real Estate
Settlement Procedures Act and customer consolidation. PMI's financial condition
and results of operations may materially and adversely be impacted by changes in
legislation which affects the ability of the Federal National Mortgage
Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation
("Freddie Mac") to offer a substitute for mortgage insurance, including self-
insurance and alternative forms of credit support, or for the Federal Housing
Administration ("FHA") or the Veteran Administration ("VA") to increase
statutory lending limits or other expansion of eligibility for the FHA and VA,
or changes in charters of banks and savings institutions. In addition, PMI's
financial condition and results of operations may materially and adversely be
impacted by a reduction in the amount of mortgage insurance coverage required by
Fannie Mae and/or Freddie Mac.
A number of other factors affecting PMI and the mortgage industry in general
could cause claims on policies issued to increase and this could materially
adversely affect PMI's financial condition and results of operations. The
management of PMI believes that loss experience could be materially and
adversely affected by economic recessions, declining housing values, higher
unemployment rates, deteriorating borrower credit, increases in the rate of
borrower defaults, rising interest rates, increases in refinance activity caused
by declining interest rates, legislation impacting borrowers' rights or a
combination of such factors, which might have nationwide impact or a
disproportionate impact on regional economic conditions and demand for housing
generally. In addition, contract underwriting is now the principal means by
which mortgage insurance is obtained, and is subject to numerous risks and
uncertainties, including availability of qualified personnel, price competition,
and timely development of computer systems needed to process the increased
volume of contract underwriting activity. The inability to remain competitive in
providing contract underwriting may materially and adversely impact PMI's
results of operations and financial condition. Also, other risk factors listed
from time to time in The PMI Group, Inc.' Securities and Exchange Commission
filings may materially and adversely impact earnings and results.
Item 7. Financial statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
The following exhibits are filed with this report:
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
99.1 Press Release dated January 20, 1999
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The PMI Group, Inc.
(Registrant)
January 21, 1999 By: /s/ John M. Lorenzen, Jr.
John M. Lorenzen, Jr.
Executive Vice President,
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
99.1 Press Release dated January 20, 1999
</TABLE>
<PAGE>
EXHIBIT 99.1
[LETTERHEAD OF PMI GROUP, INC]
FOR IMMEDIATE RELEASE:
THE PMI GROUP, INC. REPORTS
RECORD RESULTS FOR 1998
SAN FRANCISCO, JANUARY 20, 1999 The PMI Group, Inc. (NYSE:PMA) announced
today the fourth consecutive year of record net income and revenues for the
Company. New insurance written for its mortgage insurance subsidiary, PMI
Mortgage Insurance Co. (PMI), increased 82 percent to a record $27.8 billion in
1998, compared to $15.3 billion in 1997. For the quarter PMI had new insurance
written of $8.4 billion, doubling from the $4.2 billion for fourth quarter 1997.
Both insurance in force and primary risk in force grew to historic levels.
Insurance in force grew by $2.9 billion, or 4 percent, for the year and $1.8
billion for the quarter, a 2 percent increase from third quarter 1998. Risk in
force grew by $1.2 billion, or 7 percent for the year, and $0.5 billion, 3
percent during the quarter. Moreover, committed volume trends for the year
remained strong at 90 percent over 1997, while the committed volume for the
fourth quarter was 104 percent over fourth quarter 1997. With the above-
mentioned performance, we believe that PMI's growth outpaced the industry in
1998.
Operating earnings per share, excluding capital gains, were $5.53 for 1998,
another record achievement, and an increase of 14 percent over operating
earnings per share of $4.85 reported in 1997. Total net income for 1998 was
$190.3 million, or $6.04 per share, compared to $175.3 million, or $5.23 per
share for 1997.
<PAGE>
Operating earnings per share for the fourth quarter were $1.45, compared to
$1.27 a year ago, an increase of 14 percent. Total net income for the fourth
quarter was $44.1 million, or $1.45 per share, compared to $41.9 million, or
$1.28 per share, reported in the fourth quarter of 1997.
W. Roger Haughton, Chairman and Chief Executive said, "At the outset of
1998, we set our goals and expectations for the year and we delivered on those
goals and expectations. We told our shareholders that we would increase our
share of new business written beyond our share of insurance in force, while not
compromising our quality standards. We also pledged to efficiently deliver
products and services to our customers, prudently manage risk and increase our
loss mitigation efforts. We delivered on all those goals, produced strong
earnings growth for the year and positioned the company for continued earnings
growth in the future by insuring a quality book of business that will produce a
strong stream of earnings.
"1999 will be a year of change for the MI industry, as we have already seen
with Fannie Mae's recent announcement concerning reductions in mortgage
insurance coverage," Haughton continued. "We see this initiative as an
opportunity to leverage our core competencies to assess and price mortgage
default risk. Those companies that are strong, creative, and willing to
diversify in the wake of these changes will grow and prosper. PMI is such a
company."
Turning to the details of PMI's 1998 performance, total revenues for the
Company were $620.9 million for the year, an increase of 10 percent over
revenues of $564.7 million in 1997. The growth in revenues for 1998 was led by
net premiums earned of $491.2 million, which increased 8 percent, and investment
income of $84.7 million, which increased 2 percent over 1997.
<PAGE>
Another component of PMI's growth strategy, CMG, PMI's joint venture with
CUNA Mutual, reported $2.5 billion new insurance written for 1998, and insurance
in force of $4.2 billion, a 75 percent increase over 1997. CMG earned $6.2
million in 1998.
The Company repurchased 2.2 million shares of common stock during 1998. On
November 19, 1998, the Company announced a new $100 million stock repurchase
program.
Reserves for losses increased to $215.3 million as of December 31, 1998,
compared with reserves of $202.4 million at December 31, 1997. At December 31,
1998, PMI's percentage of delinquent loans was 2.31 percent, compared to 2.38
percent at December 31, 1997.
Primary direct claims paid by PMI totaled $118.4 million for 1998, compared
to $147.1 million for 1997, a decrease of 20 percent. PMI's average claim size
in 1998 was $23,321, compared to $26,390 for 1997. Direct claims paid for
California were $57.4 million in 1998, compared to $94.8 million in 1997, a
decrease of 39 percent. Average claim size for California in 1998 was $26,525,
compared to $30,283 for 1997.
PMI's risk in force increased to $19.3 billion at December 31, 1998, from
$18.1 billion at December 31, 1997. PMI's primary insurance in force was $80.7
billion at December 31, 1998, compared to $77.8 billion at December 31, 1997.
Persistency, or the percentage of insurance remaining in force compared to one
year prior, was 68.0 percent at December 31, 1998, compared with 80.8 percent at
December 31, 1997.
In order to assist our shareholders and stock analysts in their evaluation
of our company, we have further expanded our disclosure of financial and
operating information in conjunction with this earnings release. At
www.pmigroup.com/ir/jan20release.html there are four charts displaying
- -------------------------------------
information for the past eight quarters: Total Claims Paid Dollars; California
Claims Paid as a Percentage of Total Claims; Average Claim Size; and California
Notices of Delinquency as a
<PAGE>
Proportion of Total Delinquencies. A table which also presents this information
is included with this release.
The PMI Group, Inc. is headquartered in San Francisco and through its
subsidiary, PMI, is the third largest private mortgage insurer in the United
States based on 1997 year-end insurance in force. In addition to private
mortgage insurance, The PMI Group, Inc., through its subsidiaries, is a leader
in risk management technology, and provides various products and services for
the home mortgage finance industry, as well as title insurance. This release
can be accessed through the World Wide Web at www.pmigroup.com or a copy can be
----------------
obtained by dialing (800) 758-5804, entering The PMI Group, Inc. company code
no. 706963 when prompted, and following the automated prompts.
A replay of PMI's conference call discussing earnings results can be
heard by dialing (800)633-8284. Enter 1990016 and, when prompted, please
clearly say your name and company for PMI's records. Press 1 to start the
replay or 4 for additional instructions. The replay will be available for a 48-
hour period starting about 1:30pm (EST) on January 20, 1999.
______________________________________________________________________________
Cautionary Statement. The statements in this press release relating to
1999 (or assumptions underlying such matters) that are not historical facts, and
that relate to future plans, events or performance, or are preceded by, followed
by or that include the words "believes," "expects," "anticipates," "estimates",
or similar expressions, including, without limitation (i) a statement relating
to the positioning of PMI for continued earnings growth in the future by
insuring a quality book of business that will produce a strong stream of
earnings (ii) a statement of PMI's belief that it sees Fannie Mae's announcement
as an opportunity to leverage its core competencies to assess and price mortgage
default risk and (iii) a statement of PMI's belief that it will grow and
prosper, are forward looking statements within the meaning of the Private
<PAGE>
Securities Litigation Reform Act of 1995. These forward-looking statements
involve a number of risks or uncertainties including, but not limited to, the
factors listed below that could cause the Company's actual results to differ
materially from those expressed. A number of factors affecting PMI and the
mortgage industry in general could cause claims on policies issued by PMI to
increase and this could materially adversely affect The PMI Group's
financial condition and results of operations. The management of The PMI Group
believes that the loss experience of PMI could be materially and adversely
affected by economic recessions, declining housing values, higher unemployment
rates, deteriorating borrower credit, rising interest rates, legislation
impacting borrower's rights or a combination of such factors, which might have
nationwide impact or a disproportionate impact on regional economic conditions
and demand for housing generally. In addition, contract underwriting is now the
principal means by which the Company sells mortgage insurance and is subject to
numerous risks and uncertainties, including availability of qualified personnel,
price competition, and timely development of computer systems needed to process
the increased volume of contract underwriting activity. The inability of the
Company to remain competitive in providing contract underwriting may materially
and adversely impact the Company's results of operations and financial
condition. A decrease in persistency, resulting from policy cancellations of
older books of business affected by refinancings (which are affected by changes
in interest rates), may materially and adversely impact the Company's results of
operations and financial condition. Changes in legislation which affects the
ability of the Federal National Mortgage Association ("Fannie Mae") or the
Federal Home Loan Mortgage Corporation ("Freddie Mac") to offer a substitute for
mortgage insurance, including self-insurance and alternative forms of credit
support, or for the Federal Housing Administration ("FHA") or the Veteran
Administration ("VA") to increase statutory lending limits or other expansion of
eligibility for the FHA and VA or a reduction in the amount
<PAGE>
of mortgage insurance coverage required by Fannie Mae and/or Freddie Mac could
materially and adversely affect the Company's financial condition and results of
operations. Finally, other factors that may materially and adversely impact the
Company's results of operations and financial condition include the size of the
mortgage origination market, mortgage insurance industry volumes of new
business, greater than anticipated policy cancellations or lower than projected
persistency resulting in declines in insurance in force, the failure of mortgage
insurance commitments to convert into new insurance written, the impact of
competitive underwriting criteria and products including pool insurance and risk
sharing structured transactions, regulatory responses to the Company's product
offerings, changes in the performance of financial markets, the demand for and
the acceptance of the Company's products, decreased profit margin on the
Company's products, the impact of expanded financial remedies provided to
contract underwriting customers, changes in government regulations or
interpretations regarding the Real Estate Settlement Procedures Act, changes in
statutory charters, regulations and coverage requirements of the government
sponsored enterprises, banks and savings institutions, customer consolidation
and other risk factors listed from time to time in the Company's Securities and
Exchange Commission filings.
<PAGE>
THE PMI GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended December 31, Year Ended December 31,
------------------------------- -------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Net premiums written $ 137,024 $ 115,235 $ 489,100 $ 432,052
========= ========= ========= =========
Revenues
Premiums earned $ 128,753 $ 118,407 $ 491,226 $ 453,948
Investment income, net 21,229 20,955 84,681 83,136
Realized gains, net 202 478 24,636 19,584
Other income 5,213 3,148 20,366 7,979
--------- --------- --------- ---------
Total revenues 155,397 142,988 620,909 564,647
--------- --------- --------- ---------
Losses and expenses
Losses and loss adjustment expenses 32,712 38,995 135,716 152,257
Policy acquisition costs 19,698 13,712 60,280 43,395
Other operating expenses 37,701 29,535 142,625 111,745
Interest expense 1,770 1,698 7,029 6,766
Distributions on capital securities (1) 2,077 2,075 8,311 7,617
--------- --------- --------- ---------
Total losses and expenses 93,958 86,015 353,961 321,780
--------- --------- --------- ---------
Income before income taxes 61,439 56,973 266,948 242,867
Income tax expense 17,362 15,028 76,588 67,558
--------- --------- --------- ---------
Net income $ 44,077 $ 41,945 $ 190,360 $ 175,309
========= ========= ========= =========
Weighted average common shares
outstanding 30,402 32,685 31,533 33,510
========= ========= ========= =========
Net income per share (2) $ 1.45 $ 1.28 $ 6.04 $ 5.23
========= ========= ========= =========
</TABLE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C>
Assets
Investments (at market) $ 1,532,224 $ 1,490,601 $ 1,291,746
Cash 9,757 11,101 6,592
Reinsurance recoverable and prepaid premiums 42,102 31,676 83,379
Deferred policy acquisition costs 61,605 37,864 31,633
Other assets 132,182 115,361 96,569
----------- ----------- -----------
Total assets $ 1,777,870 $ 1,686,603 $ 1,509,919
=========== =========== ===========
Liabilities
Reserve for losses and loss adjustment expenses $ 215,259 $ 202,387 $ 199,774
Unearned premiums 94,886 94,150 116,951
Long-term debt 99,476 99,409 99,342
Other liabilities 171,694 130,471 106,990
----------- ----------- -----------
Total liabilities 581,315 526,417 523,057
Redeemable preferred capital securities (1) 99,040 99,006 -
Shareholders' equity 1,097,515 1,061,180 986,862
----------- ----------- -----------
Total liabilities and shareholders' equity $ 1,777,870 $ 1,686,603 $ 1,509,919
=========== =========== ===========
Book value per share $ 36.25 $ 32.69 $ 28.60
=========== =========== ===========
</TABLE>
<PAGE>
THE PMI GROUP, INC. AND SUBSIDIARIES
MORTGAGE INSURANCE RESULTS OF OPERATIONS (3)
<TABLE>
<CAPTION>
Three Months Ended December 31, Year Ended December 31,
------------------------------ ------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Net premiums written $ 114,274 $ 98,090 $ 409,796 $ 372,113
============ ============ ============ ============
Revenues
Premiums earned $ 105,393 $ 101,263 $ 411,922 $ 394,010
Investment income, net 18,731 18,155 74,424 71,636
Realized gains, net 77 666 23,565 20,659
Other income 22 28 162 149
------------- ------------ ------------ ------------
Total revenues 124,223 120,112 510,073 486,454
------------- ------------ ------------ ------------
Losses and expenses
Losses and loss adjustment expenses 32,373 38,170 135,097 150,366
Policy acquisition costs 19,698 13,712 60,280 43,395
Other operating expenses 8,072 7,811 44,296 41,037
------------- ------------ ------------ ------------
Total losses and expenses 60,143 59,693 239,673 234,798
------------- ------------ ------------ ------------
Income before income taxes 64,080 60,419 270,400 251,656
Income tax expense 19,081 17,681 78,732 72,098
------------- ------------ ------------ ------------
Net income $ 44,999 $ 42,738 $ 191,668 $ 179,558
============= ============ ============ ============
Expense ratio 24.3% 21.9% 25.5% 22.7%
Loss ratio 30.7% 37.7% 32.8% 38.2%
------------- ------------ ------------ ------------
Combined ratio 55.0% 59.6% 58.3% 60.9%
============= ============ ============ ============
TITLE INSURANCE RESULTS OF OPERATIONS
Net premiums written $ 23,367 $ 17,144 $ 79,304 $ 59,938
============ =========== =========== ===========
Revenues
Premiums earned $ 23,367 $ 17,144 $ 79,304 $ 59,938
Investment income, net 386 372 1,427 1,257
Other income 8 13 31 30
------------- ------------ ------------ ------------
Total revenues 23,761 17,529 80,762 61,225
------------- ------------ ------------ ------------
Losses and expenses
Losses and loss adjustment expenses 339 824 619 1,890
Underwriting and other expenses 19,940 14,968 69,108 53,085
------------- ------------ ------------ ------------
Total losses and expenses 20,279 15,792 69,727 54,975
------------- ------------ ------------ ------------
Income before income taxes 3,482 1,737 11,035 6,250
Income tax expense 1,408 641 4,182 2,218
------------- ------------ ------------ ------------
Net income $ 2,074 $ 1,096 $ 6,853 $ 4,032
============ =========== =========== ===========
Expense ratio 85.3% 87.3% 87.1% 88.6%
Loss ratio 1.5% 4.8% 0.8% 3.2%
------------- ------------ ------------ ------------
Combined ratio 86.8% 92.1% 87.9% 91.8%
============= ============ ============ ============
</TABLE>
<PAGE>
THE PMI GROUP, INC. AND SUBSIDIARIES
MORTGAGE INSURANCE OPERATIONS (3)
OTHER STATISTICAL INFORMATION
<TABLE>
<CAPTION>
Three Months Ended December 31, Year Ended December 31,
------------------------------- ------------------------------
1998 1997 1998 1997
------------- --------------- ------------- -------------
<S> <C> <C> <C> <C>
New primary insurance
written ("NIW") (in millions) $ 8,367 $ 4,173 $ 27,820 $ 15,307
=========== =========== =========== ===========
New primary risk written (in millions) $ 2,050 $ 1,079 $ 6,931 $ 4,000
=========== =========== =========== ===========
New pool risk written (in millions) $ 81 $ - $ 450 $ -
=========== =========== =========== ===========
Product mix as a % of NIW:
95% LTV's 34% 43% 36% 45%
95% LTV's/30% coverage 33% 41% 35% 42%
90% LTV's/25% coverage 40% 39% 41% 40%
ARMs 2% 9% 3% 12%
Monthlies 97% 98% 98% 98%
Refinances 34% 18% 31% 14%
=========== =========== =========== ===========
Net premiums written (in thousands):
Monthlies $ 83,322 $ 64,923 $ 300,376 $ 236,918
Annuals and singles 37,982 38,062 140,825 154,685
Refunds and ceded premiums (7,030) (4,895) (31,405) (19,490)
----------- ----------- ----------- -----------
Net premiums written $ 114,274 $ 98,090 $ 409,796 $ 372,113
=========== =========== =========== ===========
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Direct primary insurance in force (in millions) $ 80,682 $ 77,787 $ 77,312
Direct primary risk in force (in millions) $ 19,324 $ 18,092 $ 17,336
Direct pool risk in force $ 450 $ - $ -
Risk-to-capital ratio 14.9 to 1 14.6 to 1 15.8 to 1
Insured primary loans 714,210 698,831 700,084
Persistency 68.0% 80.8% 83.3%
Loans in default 16,526 16,638 15,326
Default rate 2.31% 2.38% 2.19%
Direct primary claims paid (year-to-date in millions) $ 118.4 $ 147.1 $ 143.2
Direct primary claims paid number (year-to-date) 5,077 5,574 5,197
Average Claim Size (year-to-date) $ 23,321 $ 26,390 $ 27,554
</TABLE>
<PAGE>
THE PMI GROUP, INC. AND SUBSIDIARIES
MORTGAGE INSURANCE OPERATIONS (3)
OTHER STATISTICAL INFORMATION
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
------------------------- ---------------------- --------- -------------
Loans in Reserve for Loans in Reserve for Loans in Reserve for
Default Losses Default Losses Default Losses
----------- ------------ --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Primary insurance:
New book (4)................... 15,526 $ 198,090 15,554 $ 185,335 13,968 $ 181,132
Old book (5)................... 1,000 5,270 1,084 6,876 1,358 9,293
----------- ------------ --------- ------------ --------- ------------
Total primary................ 16,526 203,360 16,638 192,211 15,326 190,425
Pool insurance................... 526 $ 2,772 - - - -
----------- ------------ --------- ------------ --------- ------------
Total........................ 17,052 $ 206,132 16,638 $ 192,211 15,326 $ 190,425
=========== ============ ========= ============ ========= ============
Primary insurance:
California..................... 3,067 $ 58,741 3,987 $ 90,156 4,261 $ 110,561
Other states................... 13,459 144,619 12,651 102,055 11,065 79,864
----------- ------------ --------- ------------ --------- ------------
Total........................ 16,526 $ 203,360 16,638 $ 192,211 15,326 $ 190,425
=========== ============ ========= =========== ========= ============
December 31, December 31, December 31,
1998 1997 1996
------------ ------------ -------------
Reserve for losses and loss
adjustment expenses:
Mortgage insurance operations................ $ 206,132 $ 192,211 $ 190,425
Title insurance.............................. 9,127 10,176 9,349
---------- ---------- ----------
Total reserve for losses................ $ 215,259 $ 202,387 $ 199,774
============ ============ ============
California Portfolio:
Direct claims paid (year-to-date in millions).. $ 57.4 $ 94.8 $ 104.1
Direct claims paid as a percent of total....... 48% 64% 72.7%
Direct claims paid number (year-to-date)....... 2,164 3,131 3,311
Average claim size............................. 26,525 30,283 31,441
Loans in default............................... 3,067 3,987 4,261
Loans in default as a percent of total......... 18.6% 24.0% 27.8%
Default rate................................... 3.15% 3.73% 3.81%
</TABLE>
(1) Company obligated mandatorily redeemable preferred capital securities of
subsidiary trust holding solely junior subordinated deferrable interest
debentures of the Company.
(2) Diluted earnings per share per Statement of Financial Accounting Standard
No. 128, Earnings per Share.
(3) The Mortgage Insurance operations include the operating results of PMI
Mortgage Insurance Co. ("PMI"), Residential Guaranty Co., PMI Mortgage
Guaranty Co., PMI Reinsurance Co., and contract underwriting costs incurred
by PMI Mortgage Services Co. ("MSC") in connection with mortgage insurance
written for PMI. MSC provides contract underwriting services to lenders who
are mortgage insurance customers of PMI. The underwriting costs of MSC are
not deferred to the extent MSC is compensated by customers for contract
underwriting.
(4) The new book consists of insurance written in the mortgage insurance
operations since January 1, 1985.
(5) The old book consists of insurance written in the mortgage insurance
operations prior to January 1, 1985.
Certain prior year amounts have been reclassified to conform to current year
presentation.
<PAGE>
THE PMI GROUP, INC. AND SUBSIDIARIES ("TPG") and
CMG MORTGAGE INSURANCE COMPANY ("CMG")
SUPPLEMENTAL COMBINED OPERATING RESULTS
Three Months Ended December 31,
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------- -------------
TPG and CMG TPG and CMG
Insurance CMG Combined Combined
Operations Operations(a) Operations(b) Operations
------------- ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
Net premiums written $ 114,274 $ 4,762 $ 119,036 $ 101,127
========= ======== ========= =========
Revenues
Net premiums earned $ 105,393 $ 4,740 $ 110,133 $ 104,225
Investment income 18,731 842 19,573 18,704
Realized gains 77 159 236 668
Other revenue 22 2 24 27
--------- --------- --------- ---------
Total revenues 124,223 5,743 129,966 123,624
--------- --------- --------- ---------
Losses and expenses
Losses and loss adjustment expenses 32,373 437 32,810 38,343
Underwriting and other expenses 27,770 2,281 30,051 23,380
Total losses and expenses 60,143 2,718 62,861 61,723
--------- --------- --------- ---------
Income before income taxes 64,080 3,025 67,105 61,901
Income tax expense 19,081 981 19,704 18,058
--------- --------- --------- ---------
Net income $ 44,999 2,044 $ 47,401 $ 43,843
========= ========= =========
Non-TPG share of CMG net income (c) (1,022)
TPG share of CMG net income (c) $ 1,022
=========
Expense ratio 24.3% 47.9% 25.2% 23.1%
Loss ratio 30.7% 9.2% 29.8% 36.8%
--------- --------- --------- ---------
Combined ratio 55.0% 57.1% 55.0% 59.9%
========= ========= ========= =========
</TABLE>
TPG AND CMG COMBINED STATISTICAL INFORMATION (a)
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Direct primary NIW (year-to-date in millions) $ 30,277 $ 16,681 $ 18,697
Direct primary insurance in force (in millions) $ 84,918 $ 80,164 $ 78,431
Direct primary risk in force (in millions) $ 19,325 $ 18,697 $ 17,619
Risk-to-capital ratio 14.9 to 1 14.7 to 1 15.8 to 1
Insured primary loans 753,031 720,906 710,613
Persistency 68.2% 80.9% 83.2%
Loans in default 16,622 16,662 15,329
Default rate 2.21% 2.31% 2.16%
Direct primary claims paid (year-to-date in millions) $ 118.8 $ 147.3 $ 143.4
Direct primary claims paid number (year-to-date) 5,094 $ 5,581 5,199
Average Claims size (year-to-date) $ 23,322 $ 26,393 $ 27,582
</TABLE>
(a) CMG amounts are included at 100%.
(b) Includes adjustments to eliminate income taxes related to CMG equity
earnings. Accordingly, the TPG and CMG income tax expense and net income
column amounts do not add together to total the combined column amounts.
(c) As TPG owns 50% of CMG (as of October 1, 1998), CMG results at 100% are
reconciled to the portion of CMG net income included in TPG's operating
results as reported under the equity method in TPG's consolidated
financial statements.
<PAGE>
THE PMI GROUP, INC. AND SUBSIDIARIES
MORTGAGE INSURANCE OPERATIONS
SUPPLEMENTAL FINANCIAL INFORMATION
Analysis of Deferred Acquisition Cost ("DAC")
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31, Year Ended December 31,
--------------------- -----------------------
1998 1997 1998 1997
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Beginning DAC balance............ $ 53,509 $ 35,794 $ 37,864 $ 31,633
Less amortized to date........... (19,698) (13,712) (60,280) (43,395)
Plus additional deferral......... $ 27,794 $ 15,782 $ 84,021 $ 49,626
-------- -------- -------- ---------
Ending DAC balance............... $ 61,605 $ 37,864 $ 61,605 $ 37,864
======== ======== ======== =========
- -------------------------------------------------------------------------------------
New Insurance written (NIW)...... 8,366,619 4,172,956 27,820,065 15,307,147
</TABLE>
Supplemental Reserve, Claims and Delinquency Data
(Reserve for Losses dollars in thousands)
<TABLE>
<CAPTION>
Reserve for Direct Average CA % of CA % of
Three Months Ended Losses Claims Paid Claims Size Claims Dollars Delinquencies
- --------------------------- ------------- ------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
December-1998.............. $ 206,132 $ 24,493 $ 21,583 42.4% 18.6%
September-1998............. $ 199,398 $ 26,639 $ 21,387 44.1% 20.1%
June-1998.................. $ 192,142 $ 34,468 $ 24,411 48.9% 21.7%
March-1998................. $ 197,850 $ 32,792 $ 25,188 55.5% 18.9%
December-1997.............. $ 192,211 $ 36,220 $ 26,084 59.7% 24.0%
September-1997............. $ 190,379 $ 38,122 $ 26,037 61.4% 25.4%
June-1997.................. $ 189,125 $ 35,494 $ 26,342 65.5% 27.3%
March-1997................. $ 192,098 $ 37,294 $ 27,212 71.3% 27.8%
</TABLE>
<PAGE>
THE PMI GROUP, INC. AND SUBSIDIARIES
MORTGAGE INSURANCE OPERATIONS
SUPPLEMENTAL FINANCIAL INFORMATION
Analysis of Deferred Acquisition Cost ("DAC")
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended December 31, Year Ended December 31,
--------------------------------- -------------------------------
1998 1997 1998 1997
------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Beginning DAC balance $53,509 $35,794 $ 37,864 $ 31,633
Less amortized to date (19,698) (13,712) (60,280) (43,395)
Plus additional deferral $27,794 $15,782 $ 84,021 $ 49,626
------------- -------------- -------------- -------------
Ending DAC balance $61,605 $37,864 $ 61,605 $ 37,864
============ ============== ============== =============
- -----------------------------------------------------------------------------------------------------------
New Insurance written (NIW) 8,326,619 4,172,956 27,820,065 15,307,147
</TABLE>
Explanation of Deferred Acquisition Costs
- -----------------------------------------
The PMI Group, Inc. (PMI) defers certain costs related to the acquisition of
primary mortgage insurance and amortizes these costs against related premium
revenue, in order to match costs and revenues in accordance with Generally
Accepted Accounting Principles (GAAP). These acquisition costs "vary with and
are primarily related" to the acquisition of new business. Specific costs PMI
defers include field underwriting, field sales, and national accounts. To the
extent PMI's wholly owned subsidiary, PMI Mortgage Services Company (MSC) is
compensated by customers for contract underwriting, those underwriting costs are
not deferred.
PMI's DAC methodology was consistently applied for almost 20 years, until the
introduction of a monthly Premium Payment Policy ("monthlies"). This
methodology would not give a result consistent with GAAP for monthlies, so a
monthly methodology was developed. Under the monthly methodology, DAC is
amortized by PMI on an accelerated basis over 24 months rather than the 6-8 year
average policy life. PMI believes this amortization method is appropriately
conservative, and was selected so that deferred costs will have been fully
amortized prior to the peak claims paying period.
The DAC asset is affected by: (a) acquisition costs deferred in a period and (b)
amortization of previously deferred costs in such period. In periods where
there is growth in premiums (and therefore acquisition costs), the DAC asset
will increase because the amount of acquisition costs being deferred exceeds the
amount being amortized to expense.
Acquisition costs deferred by PMI over recent quarters have increased due to a
combination of the increase in NIW plus the increased cost of acquiring business
(i.e., contract underwriting).
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