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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) December 15, 2000
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
In a press release dated December 15, 2000, The PMI Group, Inc. announced that
its subsidiary, PMI Mortgage Insurance Co., entered into an agreement with the
plaintiffs to settle the putative class action litigation captioned Baynham et
al. v. PMI Mortgage Insurance Company. PMI Mortgage Insurance Co. denied all
facts and allegations in the lawsuit that alleged violations of Section 8 of the
Real Estate Settlement Procedures Act (RESPA). To account for the settlement,
PMI will take a pre-tax charge against fourth quarter 2000 earnings of $5.7
million, which is the estimated cost of settlement less anticipated insurance
recovery. On an after tax basis the charge will be approximately $3.7 million.
The settlement agreement is subject to approval by the United States District
Court, Southern District of Georgia. A copy of the Company's press release is
filed as Exhibit 99.1 hereto and is incorporated by reference.
In a second press release dated December 15, 2000, The PMI Group, Inc. announced
that operating earnings for 2000 will likely range between $5.82 - 5.85 per
share, as opposed to the $5.70 to $5.80 per share previously announced. It
reaffirmed its expectation that operating earnings for 2001 would grow between
17 and 19 percent. The operating earnings estimate announced does not include
capital gains and losses, nor does it include the $3.7 million after tax charge
the Company will take in the fourth quarter for settlement of the Baynham
litigation (see above). In the press release, the Company estimated that
reported earnings, excluding capital gains and losses, but including the lawsuit
settlement charge, will range between $5.74 - 5.77. A copy of the Company's
press release is filed as Exhibit 99.2 hereto and is incorporated by reference.
The Company's statements in this Form 8-K and attached press releases 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 include, but are
not limited to: (i) PMI's estimate that operating earnings for the year 2000,
exclusive of capital gains and losses and the $3.7 million charge the Company
will take in the fourth quarter relating to settlement of the Baynham litigation
(the "Baynham Settlement Charge"), likely will range between $5.82 and $5.85 per
share; (ii) PMI expectation that operating earnings for 2001 will grow between
17 and 19 percent; and (iii) PMI's estimate that operating earnings for the year
2000, exclusive of capital gains and losses and inclusive of the Baynham
Settlement Charge, likely will range between $5.74 and $5.77 per share. These
forward-looking statements are subject to a number of risks and uncertainties
including, but not limited to, the following factors that could cause the
Company's actual results to differ materially from those expressed herein:
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 Company's financial condition and results of operations.
The loss experience of PMI could be materially and adversely affected by
economic recession, declining housing values, higher employment rates,
deteriorating borrower credit, rising interest rates, legislation impacting
borrowers' rights, or any combination of such factors. A decrease in
persistency, resulting from policy cancellations of older books of business,
could materially impact the Company's financial results of operations. While
stable or rising interest rates may positively contribute to the persistency
rate, declining interest rates could adversely affect the Company's persistency
rate, its premium yield and its financial condition and results of operations.
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The Company's financial condition and results of operations could be materially
and adversely affected by delays in the introduction by PMI of new products or a
decrease in customer demand for new and existing products. In addition, there
can be no assurance that newly introduced products will be as profitable as the
Company' s existing products or programs.
The Company's financial condition and results of operations may be materially
and adversely affected by changes to the current legal environment, including,
but not limited to, legislation that would affect the ability of Fannie Mae or
Freddie Mac to offer a substitute for mortgage insurance, legislation that would
increase statutory lending limits of FHA and VA, and proposed risk-based capital
regulations developed by the Office of Federal Housing Enterprise Oversight.
PMI's financial condition and results of operations may be materially and
adversely affected by a reduction in the amount of mortgage insurance coverage
required by Fannie Mae and Freddie Mac (the "GSEs").
PMI jointly develops mortgage products and partners with lenders and the GSEs.
These arrangements involve the purchase of PMI's mortgage insurance products by
one or both of these parties and frequently feature cooperative arrangements
between the three parties. In 1999, a coalition of financial services and
housing related trade associations, including MICA and several large mortgage
lenders, formed FM Watch, a lobbying organization that supports expanded federal
oversight and legislation relating to the role of the GSEs in the secondary
mortgage market. The GSEs and other organizations are in the process of forming
a coalition designed in part to counter activities of FM Watch. These lobbying
activities could, among other things, polarize the GSEs, members of FM Watch,
PMI and PMI's customers. As a result of this polarization, PMI's relationships
with the GSEs may limit its opportunities to do business with some mortgage
lenders, particularly the large mortgage lenders that have formed FM Watch.
Conversely, PMI's relationships with these large mortgage lenders may limit its
ability to do business with the GSEs. Either of these outcomes could have a
material adverse effect on the Company's financial condition and results of
operations.
The Company's estimate herein of operating earnings for 2000 between $5.74 --
$5.77 per share is inclusive of the Baynham Settlement Charge. The Baynham
Settlement Charge is based, in part, upon the present estimate of insurance
payments the Company will receive from its insurance carriers as reimbursement
for certain costs and expenses incurred by, and to be incurred by, the Company
in connection with its defense and settlement of the Baynham litigation. The
Company is currently negotiating with its insurance carriers with respect to the
amount of any such payments and the Company's present estimate of insurance
payments reflects, among other things, the current status of those negotiations
and advice received by the Company' s outside counsel. There can be no assurance
that the Company's estimate of the amount of Insurance Payments will be achieved
and such an event could have an adverse effect on the Company's financial
condition and results of operations.
The performance of the Company's Australian subsidiary could be materially and
adversely affected by a weakening in the demand for housing, interest rate
volatility, and/or an increase in claims. The performance of the Company's other
strategic investments could materially and adversely be affected by changes in
the real estate, mortgage lending, mortgage servicing and financial guaranty
markets; future movements in interest rates; those operations' future financial
condition and performance; the ability of those entities to execute future
business plans; and PMI's dependence upon management to operate those companies
in which PMI does not own a controlling share.
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Any or all of these factors could affect the Company and cause PMI's performance
to differ materially from the forward-looking statements contained in this press
release. Other risks and uncertainties that could affect the Company are
discussed in PMI's various Securities and Exchange Commission filings.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits
The following exhibits are filed with this report:
Press Release dated December 15, 2000 (Baynham Litigation)
Press Release dated December 15, 2000 (Earnings Guidance)
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)
December 19, 2000 By: /s/ John M. Lorenzen, Jr.
John M. Lorenzen, Jr.
Executive Vice President,
Chief Financial Officer
