PMI Group Reports First Loss in 17 Years

Last updated on October 22nd, 2010

PMI Group, the second-largest mortgage insurer in the U.S., reported a third-quarter loss of $86.8 million, or $1.04 a share, beating revised estimates by a penny.

Originally, analysts had expected the insurer to post a loss of 67 cents for the quarter, but the company warned investors two weeks ago that it would lose about $1.05 a share after the default rate “significantly worsened” last month.

The mortgage insurer reported net income of $104.2 million, or $1.16 a share in the year-ago quarter.

The third-quarter loss included a rise in paid claims, loss adjustment expenses, and additional reserves set aside for future losses.

PMI said its U.S. mortgage insurance operations posted a net loss of $65.2 million during the quarter.

It recorded total losses of $348.3 million for the quarter, up sharply from the $67.7 million loss in the third quarter a year ago.

Total claims paid rose from $62 million to $92.6 million, fueled by a rise in notices of default, larger average claim sizes, and increased claim rates.

Net premiums written in the U.S. and international operations climbed to $276.7 million in the third quarter, compared to a total of $212.4 million during the same quarter a year ago.

The loss marks the Walnut Creek, California-based company’s first loss in 17 years, as rising mortgage defaults carved into profits.

Mortgage insurance is a necessity on residential first mortgages with a loan-to-value above 80%, protecting mortgage lenders in the event that a homeowner defaults.

Shares of PMI Group were trading down $1.76, or 9.47% to $16.82 in late-day trading on Wall Street, well below their 52-week high of $51.46.

MGIC Investment Corp, the largest mortgage insurer in the U.S., also reported a huge quarterly loss this month, telling analysts it wouldn’t be profitable in 2008 and slashing its dividend in the process.

Update: Stock guru Cramer said to dump all mortgage insurance stocks, saying rising defaults would likely drive some out of business.

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