NU Online News Service, Aug. 22, 1:12 p.m. EDT
The Arizona Department of Insurance has placed PMI Mortgage Insurance Co. (MIC) and PMI Insurance Co. (PIC) under supervision and has ordered the companies, both part of the PMI Group, to cease issuing new mortgage insurance commitments.
Rating agencies had speculated such actions could come from regulators this year after PMI Group reported a 2011 second-quarter net loss of $134.8 million and said MIC’s policyholders’ position was $320.3 million below the minimum required by Arizona law.
Standard & Poor’srecently loweredMIC’s financial-strength ratings to CCC-minus from B-minus, stating that statutory insolvency and/or regulatory action on the company is possible by the end of the year.
Moody’s recentlypointed outthat MIC, along with another mortgage insurer, Republic Mortgage Insurance Company, have “benefited from their regulators’ and the GSEs’ [government-sponsored entities] forbearance” despite having breached regulatory capital thresholds. “Without forbearance, and in the case of RMIC, without parental support, we believe the companies are at greater risk of failing to meet all claims in a run-off scenario.”
Under the recent Arizona department order, MIC and PIC are prohibited from taking a variety of actions without the approval of the director of the insurance department or the supervisor, “including lending funds, merging with another company, entering into reinsurance contracts, paying dividends and entering into affiliate transactions, and, except in the ordinary course of business, conveying or encumbering assets, withdrawing from any of its bank accounts, investing funds and incurring liabilities.”
The order notes that if MIC and PIC do not provide a plan that “cures deficiencies” in their financial conditions within 60 days, the department could take further action “including commencing conservatorship proceedings.”
PMI Group notes that the GSEs had previously approved MIC subsidiary PMI Mortgage Assurance Company (PMAC) to issue mortgage guaranty insurance in certain states where MIC is unable to continue writing new business, but the Arizona department order brings an end to that eligibility. “Accordingly,” PMI Group says, “PMAC will no longer issue mortgage insurance policies in any states.”