Mortgage insurer The PMI Group (PMI) posted a $134.8 million loss, or 83 cents per share, in the second quarter mostly due to losses within its U.S. mortgage insurance business, which currently faces some regulatory uncertainty. That compares to a net loss of $150.6 million, or $1.11 per share, in the second quarter of 2010. Still, the insurer narrowed its second-quarter loss over last year as it reported a $150 million gain on the sale of discontinued operations stemming from the offloading of its Australian operations in 2008. Analysts projected a lower loss for the quarter in the range of 59 cents per share, 20 cents off from the firm’s realized loss report. During the quarter, PMI’s mortgage insurance operations incurred $429.6 million in losses and loss-adjustment expenses as it forecasted a future with fewer claims denials and more payouts on mortgage insurance contracts. The insurer also warned it’s no longer in compliance with state capital requirements set by the Arizona Department of Insurance, its primary insurance regulator. PMI said if the regulator finds the company’s financial conditions lacking, it could force the insurer to suspend the writing of new business. U.S. mortgage insurance operations reported a net loss of $338.4 million in the second quarter. The Walnut Creek, Calif.-based insurer noted a positive development with new default notices on the decline, falling from 138,431 primary loans in default last year to 115,742 in the most recent quarter. By the end of the quarter, The PMI Group had $2.9 billion in cash, cash equivalents and investments and total assets of $635 million on hand. PMI, like other mortgage insurers, is currently caught in the crossfire of a changing industry that has yet to define what type of role mortgage insurance will play in the future mortgage finance space. Some analysts, however, are still behind the mortgage insurers. Keefe, Bryette and Woods recently tempered its loss expectations for The PMI Group, and Standard & Poor’s removed all of PMI’s ratings from credit ratings watch on the grounds that it believed the insurer could shore up more capital using internal and external initiatives.  S&P is keeping the insurer’s overall outlook negative. Write to Kerri Panchuk.