PMI Group reaches deal to sell Australian...

PMI Group reaches deal to sell Australian assets
www.marketwatch.com
By Steve Goldstein & Alistair Barr

LONDON (MarketWatch) -- PMI Group on Thursday reached a deal to sell its Australian operations, as the mortgage insurer tries to steady itself amid slumping house prices and surging defaults on home loans in the U.S.

PMI Group is selling its Australian assets to QBE Insurance Group (AU:QBE: news, chart, profile) for $920 million, which PMI says is the net tangible asset value of the business as of June 30.

That figure could drop, as 20% of QBE's payment is in the form of a promissory note that could be reduced to the extent that the performance in PMI Australia's existing portfolio doesn't meet targets. The rest of the consideration is in cash.

PMI said the deal will enhance its overall liquidity and support operations for its U.S. mortgage insurance operations.

PMI in principle also has reached a deal to sell its Hong Kong based operation with $55 million of net tangible assets to QBE, though terms haven't been finalized.

PMI reported a larger-than-expected second-quarter loss earlier this month. The company also said it's closing its Canadian subsidiary and unveiled plans to re-organize its European unit to conserve capital for its main U.S. mortgage insurance business.
Mortgage insurance helps home buyers who don't have enough money for a down payment, which traditionally was 20% of the purchase price. But as house prices have slumped and defaults surged, mortgage insurers like PMI, Radian Group and MGIC Investmen have had to pay a lot more claims on these policies.

PMI shares have slumped 79% so far this year, while Radian is down 72% and MGIC has lost 68%.

Demand for mortgage insurance has increased in the past year as alternatives for stretched home buyers, such as second mortgages, have dwindled. That's allowed mortgage insurers to increase prices, while also raising underwriting standards. This may make current policies more profitable.

However, mortgage insurers like PMI are still dealing with the hangover from the real estate boom earlier this decade, suffering big losses on home loans they backed in 2005, 2006 and 2007.

The companies are now looking for ways to boost capital so they have enough financial firepower to keep writing the more attractive new business. Selling new shares and other securities would dilute current investors, so the insurers are trying other tactics.

Radian has stopped its bond insurance business from selling new guarantees. That will free up capital that the company plans to funnel into its main mortgage insurance business.
Radian Chief Executive S.A. Ibrahim said this week that the company won't have an immediate need for extra capital after it transfers capital from its bond insurance unit to its mortgage insurance business.