PMI Loss Narrower than Estimates

The PMI Group, Inc. (PMI) reported its 1Q09 financial results today before market open, with a conference call held this afternoon. Net loss from continuing operations for the reported quarter was $115.3 million or $1.41 per diluted share, compared to a net loss from continuing operations of $305.9 million or $3.77 per diluted share in the prior-year quarter.

Its 1Q09 loss was primarily driven by continued high losses and loss adjustment expenses (LAE) in the U.S. Mortgage Insurance Operations, and a decrease in premiums earned. However, the loss was substantially narrower than the estimates, and as a result, the shares have rallied sharply today.

U.S. Mortgage Insurance reported a net loss from continuing operations of $127.6 million in 1Q09. Total revenues for this segment decreased 24.6% year-over-year to $209.1 million.

International Operations reported a net income from continuing operations of $6.7 million in 1Q09. Total revenues for this segment came in at $13.3 million.

In Financial Guaranty, earnings from continuing operations for 1Q09 was nil, compared to a loss of $123.0 million in the prior-year quarter.

Corporate & Other reported a net income from continuing operations of $5.6 million in 1Q09, up 12.0% from $5.0 million in the prior-year quarter. Total revenues for this segment decreased 33.0% year-over-year to $22.7 million.

As of March 31, 2009, book value declined to $14.16 per share, compared to $15.65 per share as of December 31, 2008 and $27.58 per share as of March 31, 2008.

Based on better-than-expected 1Q09 financial results, we are reducing our FY09 loss estimate to $3.83 per diluted share and increasing our FY10 earnings estimate to $0.30 per diluted share. Though the company may benefit from the recent U.S. regulatory moves, it will face continued losses in the coming quarters, till the housing situation bottoms out. We are maintaining our Hold recommendation on the shares.

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