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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) June 9, 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.)
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Item 5. Other Events
On June 9, 1999, The PMI Group, Inc., announced that it agreed to acquire MGICA,
Ltd., the second largest mortgage insurance company in Australia, from AMP, a
major Australian provider of insurance and financial services. A copy of the
Company's press release dated June 9, 1999 announcing such transaction is filed
as Exhibit 99.1 hereto and is incorporated herein by reference.
In the Transaction Fact Sheet, attached to the press release, management made
several statements that are subject to numerous assumptions. The statements
regarding PMI's estimate of the transaction effect on The PMI Group, Inc., that
earnings per share is expected to be approximately $0.10 - 0.15 per share for
1999 (based on an assumed mid-July closing) and approximately $0.36-0.39 per
share for 2000, are forecasts that are necessarily based on assumptions about,
and estimates of future events that may or may not occur. The assumptions
underlying the effect of the MGICA transaction on the PMI Group, Inc.'s
earnings per share are set forth in the "Financial Highlights" section of the
Transaction Fact Sheet. Past results are not necessarily representative of
future results. The outcome of such future events may depend in part on the
factors set forth in the cautionary statement contained in the Press Release.
The information relating to expected earnings per share is provided as of the
date reported and PMI does not take any responsibility for providing updates
regarding changes occurring after such date.
Item 7. Financial statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
The following exhibits are filed with this report:
Exhibit No. Description
99.1 Press Release dated June 9, 1999
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)
June 9, 1999 By: /s/ John M. Lorenzen
John M. Lorenzen, Jr.
Executive Vice President,
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
99.1 Press Release dated June 9, 1999
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EXHIBIT 99.1
[PMI GROUP, INC. LETTERHEAD]
NEWS RELEASE
FOR IMMEDIATE RELEASE:
THE PMI GROUP, INC.
ANNOUNCES ACQUISITION OF
MAJOR AUSTRALIAN MORTGAGE INSURER
SAN FRANCISCO, June 9, 1999 -- The PMI Group, Inc. (NYSE:PMA) announced
today that it had agreed to acquire MGICA, Ltd, the second largest lender's
mortgage insurance company in Australia, from AMP General Insurance Holdings
Limited, a major Australian financial services provider. The purchase price was
(US) $77.6 million.
MGICA has approximately a 25 percent share of the mortgage insurance market
in Australia. The company has insurance in force of (US) $17.5 billion and
wrote (US) $3.7 billion of new insurance in 1998.
"We are delighted to be entering the Australian market through the
acquisition of a leading company such as MGICA," said W. Roger Haughton,
Chairman and CEO of PMI. "The company has a reputation for profitability, sound
underwriting and superior customer service - hallmarks of the way PMI runs its
business. We are confident that this will be a good match. We look forward to
combining our skills and experience with those of MGICA's to enhance delivery of
products and services to lenders and borrowers in both Australia and New Zealand
Moreover, we expect the acquisition of MGICA by PMI will be accretive to
earnings immediately," Mr. Haughton said.
Australia enjoys a home ownership rate of 70%, slightly in excess of the
U.S. rate. In 1998 Australia's economy grew 4.6%, with a GDP of $370 billion.
Mortgage originations totaled (US) $34 billion in 1998, with mortgage-backed
security issuances reaching some (US) $8.5 billion. The Australian mortgage
insurance industry wrote approximately (US) $14.7 billion in new insurance last
year. The industry focuses on lenders as its customer base and primarily offers
single premium, 100% coverage policies.
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MGICA was established in 1965. Based in Sydney, MGICA has approximately
85 people on staff. The Company enjoys a AA- rating from Standard & Poors and
an A1 rating from Moody's. MGICA also writes business in New Zealand, where it
enjoys a 40-45 percent market share. MGICA will change its name to PMI Mortgage
Insurance Australia Pty. Ltd. after an appropriate transition period.
The transaction is expected to close in the third quarter following
necessary regulatory approvals in the U.S. and Australia. PMI was advised on
this transaction by Morgan Stanley Dean Witter; Allen, Allen & Hemsley and
Deloitte & Touche. A transaction fact sheet containing more detailed information
is attached to this press release as Exhibit I.
The PMI Group, Inc. is headquartered in San Francisco and through its
subsidiary, PMI Mortgage Insurance Co., is the second largest private mortgage
insurer in the United States based on first quarter 1999 new insurance written.
In addition to private mortgage insurance, The PMI Group, Inc., through its
subsidiaries, is a leader in risk management technology providing various
products and services for the home mortgage finance industry as well as title
insurance.
The acquisition of MGICA is PMI's second international venture: in April
1999 PMI announced that the company had commenced writing mortgage insurance in
Hong Kong.
This release can be accessed through the World Wide Web at www.pmigroup.com
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or a fax copy of this release can be obtained by dialing 800-758-5804, entering
The PMI Group, Inc. company code no. 706963 when prompted, and following the
automated prompts.
Cautionary Statement. The statement in this press release relating to the
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Company's belief that the addition of MGICA to the PMI Group will be accretive
to earnings immediately is a forward-looking statement within the meaning of the
Private Securities Litigation Reform Act of 1995. This forward-looking
statement involves 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:
The impact of MGICA's earnings on the PMI Group may be influenced by
several factors including, receiving all necessary regulatory and third party
approvals in a timely manner; obtaining the expected financing for the
transaction; retaining key MGICA employees by the development of strong
incentive and compensation programs; maintaining MGICA's reputation and
relationships with lender customers and business partners in Australia and New
Zealand; the economic strength of the mortgage origination markets in Australia
and New Zealand; increases in the level of defaults and claims on policies
insured by MGICA; changes in regulations and laws affecting the mortgage
insurance markets in Australia and New Zealand; competitive pressures affecting
MGICA; foreign currency exchange and translation issues; and the ability to
integrate MGICA's risk management technology systems and products with those of
PMI's; any or all of which could materially and adversely affect MGICA's
financial condition and results of operations. In addition, receiving the
expected tax and accounting treatment applicable to the transaction will
influence the level of the contribution of MGICA's earnings to PMI.
Other investment considerations affecting the Company are listed from time
to time in the Company's Securities and Exchange Commission filings.
# # #
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EXHIBIT I
PRESS RELEASE
THE PMI GROUP, INC.
ACQUISITION OF MGICA (AUSTRALIA) LIMITED
TRANSACTION FACT SHEET
Analyst and Investor Contacts: Glen Corso 415-393-6429
John Cummings 415-393-6463
SEE CAUTIONARY STATEMENT ABOVE
The acquisition of MGICA from AMP General Insurance Holdings Limited represents
the first acquisition of a wholly owned subsidiary the company has made since
The PMI Group, Inc. (PMI) acquired American Pioneer Title Insurance Company
(APTIC) in 1992. The acquisition also represents the second international
endeavor for PMI after the recently announced entry into the Hong Kong market
earlier this year.
MGICA
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MGICA was established in Sydney, Australia in 1965 and is rated AA- by Standard
& Poors and A1 by Moody's. The company has approximately 85 employees and
operates through six field offices in addition to its headquarters in Sydney.
MGICA has enjoyed a 20-25 percent market share in Australia, and conducts
business in New Zealand, where it enjoys a 40-45 percent market share. The
Managing Director, Ian Graham, has been with the company 30 years and will
remain following the acquisition.
MGICA's parent, AMP General Insurance Holdings Limited, Australia's largest
insurance and financial services company, had been seeking opportunities to
divest MGICA when it was decided that the mortgage insurance subsidiary did not
fit the parent's long-term, wider strategic focus on mutual funds, investment
management and life insurance products. PMI had been looking for an effective
way to enter the high quality Australian market, and AMP's timing was a natural
fit with PMI strategic goals.
MGICA is the second largest of four Australian mortgage insurance companies. In
order of 1998 market share these companies are: General Electric (45 percent
market share), MGICA (25 percent), Royal & Sun (17 percent) and Commercial Union
(13 percent). MGICA wrote $3.7 billion in new insurance in 1998 and ended the
year with $17.5 billion of insurance in force.
Australia and the Mortgage Insurance Market
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Australia currently enjoys a high homeownership rate of 70%, slightly higher
than in the United States and solid sovereign rating from Standard & Poors of
AA+. Australia's economy grew at a healthy 4.6 percent rate in 1998 with GDP of
$370 billion (US), despite the effects of the Asian economic crisis which hurt
most commodity based economies. Australia has the most advanced secondary
mortgage market outside the United States, totaling some $8.5 billion (US) in
1998 issues. Annual mortgage originations totaled $34 billion (US) in 1998, with
five lenders dominating approximately 75 percent of the total. Historically
Australia's economic cycle is not as pronounced as in the U.S. and features
fewer, and briefer, recessions.
The Australian mortgage insurance accounted for approximately $14.7 billion of
new insurance written in 1998, or roughly 7.8 percent of the United States
mortgage insurance market in 1998. The mortgage insurance industry is AA rated
and supported by large, well-capitalized parent companies. Products are single
premium products with typically 100 percent coverage.
Historically, the industry has employed limited use of technology, which PMI
believes it can deliver to help strengthen underwriting, add better consistency
in decision-making, and help improve operating efficiencies. Industry return-
on-equity has historically been a modest 10-12 percent, with claim rates
typically around 1 percent and a maximum historical loss ratio around 90
percent. Mortgage insurance premiums have improved in the Australian market
with around 20-30 percent price increases concluded in January. GE's entry into
the market in 1997 with the
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purchase of the Australian government's mortgage guaranty agency, HLIC, has made
the market more attractive by fostering favorable changes, such as improving
price levels.
Transaction
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In the spring of 1998, PMI began an in-depth market visit of Australia and
established a network of local contacts. Late last year, ABN AMRO, the
investment bank representing AMP Limited, approached PMI to consider the
acquisition. In January PMI began the process of conducting due diligence from
the United States and continued with extensive on-site due diligence earlier
this year. By May, PMI and AMP had agreed in principal on terms.
The transaction will consist of a mixture of cash from PMI Mortgage Insurance
Co. and debt incurred by a local intermediate holding company, PMI Mortgage
Insurance Australia (Holdings) Pty. Limited, in exchange for 100 percent of the
stock of MGICA Limited. PMI's cash investment will be approximately $31 million,
with the balance of the $77.6 million purchase price financed through an
unsecured loan guaranteed by The PMI Group.
The closing of the transaction is expected in the third quarter with the
completion of regulatory review in the United States, Australia and New Zealand.
Financial Highlights
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The effect of the MGICA transaction on The PMI Group, Inc.'s earnings per share
is expected to be immediately accretive. At this early stage PMI estimates
earnings per share accretion resulting from this transaction of approximately
$0.10-0.15 per share for 1999 (based on an assumed mid-July closing) and
approximately $0.36-0.39 per share for 2000. PMI's operational assumptions
include: 1) no premium rate or market share increases by MGICA; 2) an increase
in MGICA's loss ratio from 33 percent to 40 percent over 10 years; and 3) a
decline in MGICA's expense ratio from 38 percent to 28 percent over 10 years.
With these assumptions, PMI is expecting an annual return on equity in the 25
percent range over the next five years.
Summary
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PMI believes there are significant opportunities to expand sources of revenue
from international operations utilizing PMI's core competencies of pricing and
managing credit risk. Australia, together with the commencement of mortgage
insurance operations in Hong Kong announced in April 1999, provides an
outstanding opportunity for the company to establish a significant international
presence as one of the largest and most profitable U.S. mortgage credit
enhancement companies. MGICA has a similar reputation to PMI with a history of
sound underwriting, superior customer service, and long-term profitability. PMI
believes that the addition of MGICA to The PMI Group, Inc. will be a significant
enhancement to shareholder value.
