PMI Group under severe financial stress: CreditSights
Mortgage insurer The PMI Group (PMI) is under severe financial stress with the company's balance sheet deteriorating as it pays claims while banned from writing new business, according to research and analytics firm CreditSights. "Over the next several quarters we see meaningful default risk," CreditSights analysts said in a report. The firm said PMI is already under the supervision of its primary regulator, the Arizona Department of Insurance, but faces additional risk of being seized altogether. A spokesperson for PMI declined to comment, adding that PMI did not review the CreditSights report. "They've put the company under supervision and are preventing them from making payments on their surplus notes, that is a precursor step to an actual seizure and liquidation of the company," CreditSights analyst Rob Haines said Friday. He said PMI's holding company has $70 million in liquidity, which is sufficient. But there is language in PMI mortgage's convertible debt notes stating a default at the insurance subsidiary level would cause a cross default at the holding company, according to Haines. He said the company could remain solvent another quarter or two, but the latest CreditSights report is relatively negative when it comes to the insurer's long-term outlook. "At this time, we would recommend investors avoid PMI credit risk," the firm said. "While previously we suggested that speculative investors consider selling CDS with a tenor of 12 months or less, we now recommend that investors avoid PMI credit risk, as our degree of confidence in a protracted state of regulatory purgatory has been eroded." Haines said other mortgage insurers are facing a tough market, but remain in relatively better shape when compared to PMI. A few even turned the corner and are doing well, including United Guaranty, a mortgage insurance subsidiary of AIG. "United Guaranty was profitable last quarter and is likely to be profitable this quarter," Haines said. "The company at one time was considered a non-core asset (at AIG), and they are considering changing that strategy because they believe the company has turned the corner and it ultimately, while still a small asset, could become a core asset again." Write to: Kerri Panchuk.