The PMI Group’s market share “is going to be eaten up by competitors” in the aftermath of Arizona regulators placing the mortgage insurer under state supervision and curtailing the writing of new business, according to Rob Haines, insurance analyst with CreditSights.
The Arizona Department of Insurance, the primary regulator for PMI, instructed The PMI Group to cease issuing new mortgage insurance commitments in any state. The move was largely expected with the insurer warning investors earlier this month in filings with the Securities and Exchange Commission.
Based on the state’s supervisory order, PMI can issue new mortgage insurance through pending commitments until Sept. 16, but must stop making interest payments on $285 million of surplus notes the company issued.
The company also cannot enter any new contracts, mergers, and acquisitions nor withdraw from any bank accounts. Arizona regulators said executives must submit a plan for rebuilding The PMI Group’s financial condition within 60 days.
The next step, Haines said, is a potential regulatory seizure of the insurer.
“The regulatory seizure might not happen, but that depends on the company’s success trying to execute some type of recapitalization,” Haines said.
The company warned if Arizona appoints a receiver and begins liquidating the insurer, roughly $735 million of outstanding debt would become due. PMI said it doesn’t have enough capital to meet those obligations. The company hired Willis Capital Markets & Advisory and Evercore Partners as advisers to help find options.
The PMI Group is still facing a difficult situation with other mortgage insurers not facing the same restrictions on new business — a key tool in any type of recapitalization plan.
“They are all facing the same headwinds, but they went into this storm in different conditions,” Haines said when discussing all private mortgage insurers. He said the problem for The PMI Group is the firm does not “have the same capital resources that these other companies had” heading into the volatile period.