The PMI Group, Inc. Reports Record 2004 Earnings; 34% Growth in Earnin

The PMI Group, Inc. Reports Record 2004 Earnings; 34% Growth in Earnings from Continuing Operations

    Business Editors

    WALNUT CREEK, Calif.--(BUSINESS WIRE)--Feb. 4, 2005--The PMI Group, Inc. (NYSE:PMI) (the "Company") today announced that consolidated net income from continuing operations totaled $81.7 million for the quarter ended December 31, 2004 and $366.5 million for the year ended December 31, 2004, compared to $65.9 million and $274.3 million for the same periods a year ago. Consolidated net income totaled $80.5 million for the quarter ended December 31, 2004 and $399.3 million for the year ended December 31, 2004, compared to $80.2 million and $299.4 million for the same periods a year ago.
    Net income per share for the quarter and year totaled $0.79 and $3.87 respectively, compared to $0.80 and $3.09 for the same periods a year ago.
    Results for the quarter include a realized capital loss from the Company's investment in Select Portfolio Servicing, Inc. ("SPS") of $13.3 million (after tax) ($0.14 per share), a reduction of the realized capital gain from the sale of American Pioneer Title Insurance Company ("APTIC") of $1.1 million (after tax) ($0.01 per share), and the dilutive effect of a change in accounting principle related to contingent convertible debentures of $0.05 per share. Results for the year include a net realized capital gain from the sale of APTIC of $29.0 million (after tax) ($0.30 per share), a realized capital loss on the Company's investment in SPS of $13.3 million (after tax) ($0.14 per share) and the dilutive effect of a change in accounting principle related to contingent convertible debentures of $0.24 per share.
    In 2004, the FASB's Emerging Issues Task Force reached a final consensus that the dilutive effect of contingent convertible debt must be included in earnings per share regardless of whether the triggering contingency has been satisfied. For the Company, this change in accounting principle resulted in the addition of 8.15 million common shares to shares outstanding and was applied on a retroactive basis requiring a restatement of prior periods' earnings per share. The dilutive effect of this change in accounting principle on diluted earnings per share for the quarter and year was $0.05 per share and $0.24 per share respectively, compared to $0.05 per share and $0.20 per share for the same periods a year ago.

RECONCILIATION OF DILUTED EARNINGS PER SHARE

(Dollars and shares, except per share Q4 Q4 amounts in millions) 2004 2004 2003 2003 ---------------------------------------------------------------------- Net Income $80.5 $399.3 $80.2 $299.4 Plus: interest expense on contingent convertible debentures, net of taxes 2.0 7.7 1.9 7.4 ------ ------- ------ ------- Net income after assumed conversion $82.5 $407.0 $82.1 $306.8 ------ ------- ------ ------- Diluted weighted average shares: Before conversion of contingent convertible debentures 96.3 97.1 94.5 91.0 Effect of conversion of contingent convertible debentures 8.2 8.2 8.2 8.2 ------ ------- ------ ------- Diluted weighted average shares after assumed conversion 104.4 105.2 102.6 99.2 ------ ------- ------ ------- Diluted earnings per share $0.79 $3.87 $0.80 $3.09 ====== ======= ====== ======= Note: Amounts may not total due to rounding ----------------------------------------------------------------------

    2004 Highlights

--	Combined(1) insurance in force grew to a record $267.3 billion at December 31, 2004 from $237.3 billion at December 31, 2003;
--	Consolidated revenues grew 16 percent over 2003 to $1,038 million compared to $891.7 million;
--	Consolidated premiums earned grew 11 percent to $770.4 million compared to $696.9 million;
--	Premiums earned from International Operations(2) increased $32.3 million or 31 percent over 2003 to $136.3 million;
--	The first full year of the Company's investment in Financial Guaranty Insurance Company ("FGIC") yielded equity in earnings of $56.6 million (after tax);
--	Completed the Company's $100 million common share repurchase program.

    Results for the Company include:

    -- Favorable net income impacts of $1.3 million and $10.2 million
    for the quarter and year respectively, due to a change in the
    average foreign currency exchange rates compared to the same
    periods a year ago. Mark-to-market losses related to the
    foreign currency put options purchased to mitigate the effects
    of a strengthening in the U.S. Dollar were $0.2 million for
    the quarter and $1.1 million for the year.

    The diluted weighted average common shares outstanding for the quarter and year totaled 104.4 million and 105.2 million respectively, compared to 102.6 million and 99.2 million for the same periods a year ago. The increases reflect the issuance of 5.75 million shares in November 2003 as a result of the Company's common stock offering, partially offset by the Company's repurchase of 2.5 million common shares in the second half of 2004. For the quarter and year, 1.5 million shares and 2.5 million common shares respectively were repurchased at a cost of $60.3 million and $100 million respectively.
    Combined new insurance written (including new credit default swaps written) for the quarter and year was $19.1 billion and $83.4 billion respectively, compared to $39.3 billion and $113.2 billion for the same periods a year ago. The decreases were due primarily to declines in new insurance written by U.S. Mortgage Insurance Operations(3), partially offset by increases in new insurance written by PMI Australia. Combined insurance in force (including new credit default swaps written) at December 31, 2004 $267.3 billion, compared to $237.3 billion at December 31, 2003. The increase was due primarily to an increase in insurance in force for PMI Australia.
    Consolidated net premiums written for the quarter and year totaled $200.1 million and $771.4 million respectively, compared to $350.9 million and $876.0 million for the same periods a year ago. The decreases were due primarily to a single premium non-refundable policy executed in the fourth quarter of 2003 totaling $114 million of net premiums written for U.S. Mortgage Insurance Operations.
    Consolidated premiums earned for the quarter and year totaled $202.3 million and $770.4 million respectively, compared to $182.4 million and $696.9 million for the same periods a year ago. The increase for the quarter was due primarily to the increase in premiums earned for U.S. Mortgage Insurance Operations. The increase for the year was due primarily to increases in premiums earned for U.S. Mortgage Insurance Operations and International Operations.
    Consolidated net investment income for the quarter and year totaled $43.0 million and $168.6 million respectively, compared to $47.2 million and $149.8 million for the same periods a year ago. The decrease for the quarter was due primarily to a reduction in the amount of cash available for investment due to the repurchase of $100 million of common stock during the third and fourth quarters of 2004. The increase for the year was due primarily to an increase in the investment portfolio average balance.
    Consolidated losses and loss adjustment expenses for the quarter and year totaled $60.1 million and $237.3 million respectively, compared to $59.4 million and $209.1 million for the same periods a year ago. The increase for the year was due primarily to the higher losses and loss adjustment expenses incurred by U.S. Mortgage Insurance Operations and to the change between the losses and loss adjustment expenses/(reversals) for PMI Australia for 2004 of $0.6 million compared to ($8.2) million for 2003.
    Consolidated reserve for losses and loss adjustment expenses totaled $364.8 million at December 31, 2004, compared to $346.9 million at December 31, 2003. The increase was led principally by an increase in loss reserves for U.S. Mortgage Insurance Operations and PMI Europe.
    Consolidated other underwriting and operating expenses for the quarter and year totaled $57.8 million and $201.8 million respectively, compared to $46.3 million and $175.7 million for the same periods a year ago. The increases for the quarter and year were due primarily to the higher expenses for U.S. Mortgage Insurance Operations and PMI Australia, partially offset by lower U.S. contract underwriting expenses.
    Consolidated income tax expense from continuing operations for the year totaled $112.5 million and includes the third quarter 2004 reversal of a $4.7 million tax reserve established in connection with notices of assessment received from the California Franchise Tax Board for dividends received by the Company from its wholly-owned insurance company subsidiaries. Legislation enacted by the State of California on September 29, 2004 permits an irrevocable election to take a deduction of 80% of qualifying dividends received by holding companies. The Company has made this election.

2004 SEGMENT HIGHLIGHTS

U.S. Mortgage (Dollars in Insurance International Financial millions) Operations Operations Guaranty(4) Other(5) Total ---------------------------------------------------------------------- Net premiums written $598.1 $173.2 $-- $0.0 $771.4(a) Premiums earned 634.0 136.3 -- 0.0 770.4(a) Equity in earnings 15.3 -- 67.8 0.4 83.6(a) Total revenues 754.1 191.3 67.8 24.9 1,038.2(a) Losses, expenses and interest expense 404.2 48.7 -- 106.4 559.2(a) Net income $254.5 $99.9 $60.7 ($15.8 ) $399.3

(a) Does not total due to rounding ----------------------------------------------------------------------

    U.S. Mortgage Insurance Operations

    Net income for U.S. Mortgage Insurance Operations for the quarter and year totaled $69.8 million and $254.5 million respectively, compared to $59.4 million and $245.5 million for the same periods a year ago. The increases were due primarily to increases in premiums earned, partially offset by increases in other underwriting and operating expenses, including a field operations restructuring charge of $2.9 million.
    Net premiums written for U.S. Mortgage Insurance Operations for the quarter and year totaled $153.9 million and $598.1 million respectively, compared to $252.9 million and $685.1 million for the same periods a year ago. The decreases were due to the execution of a single premium non-refundable policy executed in the fourth quarter of 2003 totaling $114 million, partially offset by increases in monthly premium plan premiums received.
    Premiums earned for the quarter and year totaled $168.3 million and $634.0 million respectively, compared to $145.2 million and $592.8 million for the same periods a year ago. The increases were due primarily to an increase in the average premium rate as a result of a higher percentage of policies with deeper coverage, a higher percentage of policies on adjustable rate mortgages and a higher proportion of mortgages with higher loan to value ratios, all compared to the same periods a year ago. The increase for the year was also attributable to $14.5 million of premiums earned from the cancellation of coverage on certain loans insured under a non-refundable single-premium policy.
    Net investment income for the quarter and year totaled $25.5 million and $102.2 million respectively, compared to $35.6 million and $103.1 million for the same periods a year ago. The decreases were due primarily to adjustments made in the fourth quarter of 2003 related to the amortization of discounts and call premiums on bonds called for early redemption, partially offset by increases in the investment portfolio and municipal bond refundings.
    Equity in earnings from CMG Mortgage Insurance Company for the quarter and year totaled $3.0 million (after tax) and $9.9 million (after tax) respectively, compared to $2.5 million (after tax) and $8.8 million (after tax) for the same periods a year ago. The increases were due primarily to the growth of insurance in force and premiums earned.
    Losses and loss adjustment expenses for the quarter and year totaled $58.4 million and $233.2 million respectively, compared to $58.2 million and $214.7 million for the same periods a year ago. The increase for the year was due primarily to increases in primary claims paid and additions to loss reserves.
    Amortization of policy acquisition costs for the quarter and year totaled $16.6 million and $72.1 million respectively, compared to $20.3 million and $78.9 million for the same periods a year ago. The deferred policy acquisition cost asset declined $15.7 million from December 31, 2003 as the amortization of deferred costs outpaced additions.
    Other underwriting and operating expenses for the quarter and year totaled $27.3 million and $98.5 million respectively, compared to $19.5 million and $72.2 million for the same periods a year ago. The increase for the year was due primarily to: the recognition of expenses previously deferred as acquisition costs; increases in 2004 compensation and related expenses and 2003 compensation and related expenses paid in the first quarter of 2004; higher depreciation expense attributable to increased technology investments; and the reallocation of expenses previously recorded as loss adjustment expenses. The increase for the quarter was due primarily to compensation related expenses, the recognition of expenses previously deferred as acquisition costs and higher depreciation expense attributable to increased technology investments.
    Reported separately from other underwriting and operating expenses, in 2004 the Company incurred expenses of $2.9 million (pre-tax) related to the consolidation of certain field underwriting and sales offices and the reduction in the number of personnel. The consolidation and reduction is expected to result in annual pre-tax savings of $5 million to $6 million beginning in 2005.
    In addition to the other underwriting and operating expenses above, during the third quarter 2004, the Company received a $2.6 million (pre-tax) refund relating to the settlement in 2001 of the Baynham class action litigation.

NEW INSURANCE WRITTEN

Q4 Q4 (Dollars in billions) 2004 2004 2003 2003 ---------------------------------------------------------------------- Domestic(6) new primary mortgage insurance written $11.8 $46.6 $13.3 $64.3 Excluding CMG 10.5 41.2 11.9 57.3 Bulk transactions 2.3 5.0 1.4 7.1 Domestic mortgage pool insurance written 3.0 10.5 8.4 16.0 ----------------------------------------------------------------------

    Domestic new insurance written for the quarter and year totaled $11.8 billion and $46.6 billion respectively, compared to $13.3 billion and $64.3 billion for the same periods a year ago. The decreases were due primarily to lower mortgage origination volume and lower mortgage insurance volume, together with an increase in the fourth quarter in bulk insurance writings compared to fourth quarter 2003.

PRIMARY MORTGAGE INSURANCE IN FORCE

as of as of (Dollars in billions) 12/31/04 12/31/03 ---------------------------------------------------------------------- Domestic primary insurance in force $119.4 $117.8 Excluding CMG 105.3 105.2 Domestic primary risk in force 28.9 27.4 Excluding CMG 25.7 24.7 Domestic annual primary persistency rate 61.8% 45.1% Excluding CMG 60.9% 44.6% ----------------------------------------------------------------------

    Domestic primary insurance in force totaled $119.4 billion, compared to $117.8 billion a year ago. The increase was a result of a slowing in policy cancellations over the previous year. The domestic annual persistency rate increased to 61.8 percent as of December 31, 2004 from 45.1 percent as of December 31, 2003.
    Pool risk in force as of December 31, 2004 was $2.4 billion, compared to $2.9 billion at December 31, 2003.

DEFAULT RATE

as of as of 12/31/04 12/31/03 ---------------------------------------------------------------------- Domestic primary mortgage insurance 4.37% 4.10% Excluding CMG 4.86% 4.53% Excluding CMG and bulk transactions 4.30% 3.89% Bulk transactions only 9.19% 9.45% Pool insurance 5.50% 4.36% ----------------------------------------------------------------------

    At December 31, 2004, the Company's U.S. primary insurance default rate, excluding CMG, was 4.86 percent compared to 4.53 percent at December 31, 2003. The increase was due to a combination of a 3 percent decrease in the number of policies in force and a 4 percent increase in delinquent loan inventory.
    At December 31, 2004, the Company's U.S. pool insurance default rate was 5.50 percent compared to 4.36 percent at December 31, 2003. The increase was due primarily to the 19 percent decrease in pool insurance policies in force. The Company believes that its modified pool insurance products' risk reduction features, including a stated stop loss limit, exposure limits on each individual loan in the pool, and deductibles, in some instances reduce the Company's potential for loss exposure on loans insured by those products.

CLAIMS PAID - EXCLUDING CMG

(Dollars in millions) Q4 Q4 2004 2004 2003 2003 ---------------------------------------------------------------------- Claims paid ----------- Primary - traditional flow $36.9 $141.3 $32.6 $114.7 Primary - bulk 10.8 51.9 16.8 62.2 ------ ------- ------ ------- Total primary 47.7 193.2 49.4 176.9 Total pool and other 4.4 17.7 4.4 15.7 ------ ------- ------ ------- Total claims paid $52.1 $210.9 $53.8 $192.6 ----------------------------------------------------------------------

    Primary claims paid for the quarter and year totaled $47.7 million and $193.2 million respectively, compared to $49.4 million and $176.9 million for the same periods a year ago. We believe the increase in claims paid in 2004 was influenced by the seasoning of our insurance portfolio and general economic conditions, partially offset by our loss mitigation efforts.

    International Operations

    Net income from International Operations for the quarter and year totaled $24.2 million and $99.9 million respectively, compared to $24.2 million and $78.6 million for the same periods a year ago. The flat quarterly results were attributable to strong premiums earned and net investment income recorded in the fourth quarter 2003. The strong fourth quarter 2003 results were due primarily to a reinsurance arrangement that was part of the then pending acquisition of the UK lenders' mortgage insurance portfolio from R&SA which closed in the fourth quarter 2003 and retroactive to July 2003. The increase for the year was the result of increases in premiums earned for PMI Australia and PMI Europe and the strengthening of the Australian dollar and the Euro compared to the U.S. dollar, partially offset by the change between the losses and loss adjustment expenses/(reversals) for PMI Australia for 2004 of $0.6 million compared to ($8.2) million for 2003. The results of our International Operations are subject to fluctuations in the foreign currency exchange rate of the U.S. dollar with the Australian dollar and the Euro.
    In the second quarter of 2004, the Company initiated a foreign currency put option program designed to mitigate a portion of the negative effects to net income due to a potential strengthening of the U.S. dollar relative to the Australian dollar and the Euro during the remainder of 2004. For the quarter and year, the Company recognized in other income a net expense of $0.2 million and $1.1 million respectively, due primarily to the changes in fair value of the foreign currency put options. The Company has put a similar program in place for 2005.
    Net investment income for International Operations for the quarter and year totaled $12.8 million and $47.1 million respectively, compared to $9.0 million and $31.3 million for the same periods a year ago. The increases were due primarily to increases in the investment portfolios of PMI Australia and PMI Europe and an increase in the yield on investments in the PMI Australia investment portfolio.
    Net income from PMI Australia for the quarter and year totaled $19.3 million and $76.3 million respectively, compared to $15.5 million and $62.4 million for the same periods a year ago. The increase for the year was due primarily to increases in premiums earned and net investment income and the strengthening of the Australian dollar compared to the U.S. dollar, partially offset by the change between the losses and loss adjustment expenses/(reversals) for PMI Australia for 2004 of $0.6 million compared to ($8.2) million for 2003.
    In local currency, net income from PMI Australia for the quarter and year totaled AU$25.4 million and AU$103.5 million respectively, compared to AU$21.4 million and AU$95.2 million for the same periods a year ago.
    Losses and loss adjustment expenses/(reversals) for PMI Australia for the quarter and year totaled ($0.1) million and $0.6 million respectively, compared to $0.4 million and ($8.2) million for the same periods a year ago. The change for year is primarily due to the release of $11.1 million of loss reserves in 2003. The low level of losses and loss adjustment expenses for the quarter and year is the result of the continued low claims paid and delinquent loan inventory. Claims paid totaled $0.5 million and $1.1 million for the quarter and year respectively, compared to $0.4 million and $2.7 million for the same periods a year ago.
    Premiums earned for PMI Australia for the quarter and year totaled $27.1 million and $109.1 million respectively, compared to $26.3 million and $85.1 million for the same periods a year ago. The increase for the year was a result of an increase in insurance in force during 2004 and the strengthening of the Australian dollar versus the U.S. dollar.
    Primary insurance in force for PMI Australia was $113.6 billion at December 31, 2004, compared to $87.9 billion at December 31, 2003. Primary risk in force for PMI Australia was $103.1 billion at December 31, 2004, compared to $79.3 billion at December 31, 2003.
    New insurance written for PMI Australia for the quarter and year totaled $7.3 billion and $34.2 billion respectively, compared to $5.8 billion and $25.4 billion for the same periods a year ago. PMI Australia's primary new insurance written includes flow channel insurance as well as insurance written on residential mortgage-backed securities, or RMBS. RMBS transactions include insurance on seasoned portfolios comprised of prime credit quality loans with loan-to-values principally below 80 percent. RMBS new insurance written for the quarter and year totaled $2.8 billion and $14.7 billion respectively, compared to $0.9 billion and $6.0 billion for the same periods a year ago.
    Net income for PMI Europe for the quarter and year totaled $3.5 million and $17.3 million respectively, compared to $7.1 million and $11.0 million for the same periods a year ago. The decrease for the quarter was due primarily to reinsurance premiums earned in the fourth quarter of 2003 related to the then pending acquisition of the UK lenders' mortgage insurance portfolio from R&SA. The increase for the year was due primarily to increases in premiums earned and net investment income. In local currency, net income from PMI Europe for the quarter and year totaled EUR 2.7 million and EUR 14.0 million respectively, compared to EUR 6.0 million and EUR 9.4 million for the same periods a year ago.
    Net premiums written for PMI Europe for the quarter and year totaled $2.1 million and $9.6 million respectively, compared to $51.1 million and $55.4 million for the same periods a year ago. The decreases in net premiums written were due to the reinsurance premiums written in the fourth quarter 2003 related to the then pending acquisition of the UK lenders' mortgage insurance portfolio from R&SA.
    Premiums earned for PMI Europe for the quarter and year totaled $5.4 million and $20.9 million respectively, compared to $9.2 million and $13.7 million for the same periods a year ago. The decrease for the quarter was due to the reinsurance premiums earned in the fourth quarter 2003 related to the then pending acquisition of the UK lenders' mortgage insurance portfolio from R&SA. The increase for the year was due primarily to the increase in the average insurance in force for the year.
    Net investment income for PMI Europe for the quarter and year totaled $2.1 million and $8.9 million respectively, compared to $1.6 million and $5.0 million for the same periods a year ago. Insurance in force (including credit default swaps) for PMI Europe was $34.3 billion at December 31, 2004, compared $31.6 billion at December 31, 2003. Risk in force (including credit default swaps) for PMI Europe was $2.8 billion at December 31, 2004, compared to $3.1 billion at December 31, 2003.
    PMI Europe has entered into credit default swaps which are classified as derivative instruments. Other income for PMI Europe for the quarter and year totaled $2.9 million and $6.8 million respectively, primarily relating to the change in the fair value of those instruments.
    PMI's Hong Kong reinsurance premiums earned for the quarter and year totaled $1.5 million and $6.3 million respectively, compared to $1.6 million and $5.3 million for the same periods a year ago. The increase for the year was due primarily to an increase in mortgage origination activity in Hong Kong. PMI's Hong Kong branch reinsures mortgage risk for the Hong Kong Mortgage Corporation.

    Financial Guaranty

    Financial Guaranty, which includes equity in earnings from the Company's investments in FGIC and RAM Re, reported net income for the quarter and year of $14.5 million and $60.7 million respectively, compared to $8.6 million and $10.4 million for the same periods a year ago. The increases were the result of our 42.1 percent investment in FGIC, which occurred in December 2003. For the quarter and year, equity in earnings from FGIC totaled $13.5 million (after tax) and $56.6 million (after tax) respectively. In 2004 FGIC made progress in establishing itself as a full service global financial guarantor strengthening their participation in the structured finance and international areas, while broadening their penetration in the municipal sector.
    Equity in earnings from RAM Re for the quarter and year totaled $0.9 million (after tax) and $4.1 million (after tax) respectively, compared to $1.0 million (after tax) and $2.7 million (after tax) for the same periods a year ago. The decrease for the quarter was due primarily to an increase in interest expense. The increase for the year was due primarily to the $1.9 million charge in the first quarter of 2003 for other-than-temporary impairment to its investment portfolio. PMI reports equity in earnings from RAM Re on a one-quarter lag.

    Other

    The Other segment consists of revenues and expenses of the holding company, PMI Mortgage Services Co., SPS, and for 2003 and the first quarter of 2004 the discontinued operations of APTIC.
    The Company has signed a letter of intent granting Credit Suisse First Boston (USA) with an option to buy 100 percent of the outstanding stock of SPS from PMI and the other SPS corporate shareholder. As a result of the agreement, PMI incurred a $13.3 million (after tax) realized capital loss on its investment in SPS for the quarter. The carrying value of the Company's remaining investment in SPS, following the realized capital loss, is $109.5 million, and $16.7 million of receivables, which are current to date.
    Net loss for the quarter totaled $28.0 million compared to a net loss of $11.9 million for the same period a year ago. The increase in the net loss for the quarter was due primarily to a $13.3 million (after tax) realized loss related to the letter of intent involving SPS, partially offset by a change in equity earnings from SPS and the release of $4.7 million of tax reserves. Net loss for the year totaled $15.8 million compared to $35.1 million for the same period a year ago. The decrease in net loss for the year was due to the $29.0 million (after tax) realized capital gain on sale of APTIC and a change in equity in earnings from SPS, partially offset by a $13.3 million (after tax) realized capital loss related to the agreement to sell SPS and the absence of net income from discontinued operations of APTIC.
    Equity in the earnings/(loss) of SPS for the quarter and year totaled ($0.2) million (after tax) and $0.4 million (after tax) respectively, compared to ($3.3) million (after tax) and ($16.4) million (after tax) for the same periods a year ago. The increase for the year was due to the absence of SPS-related settlement and legal expenses incurred in 2003. SPS recognized a charge in 2003 in connection with its settlement of a joint Federal Trade Commission and U.S. Department of Housing and Urban Development investigation and the estimated related costs of the settlement. In addition to equity in the earnings/(loss) of SPS, the Company realized a $13.3 million (after tax) realized capital loss related to the letter of intent involving SPS set forth above.
    Other income totaled $5.3 million and $26.1 million for the quarter and year, compared to $3.9 million and $40.1 million for the same periods a year ago. The decline for the year was the result of a decline in contract underwriting volume.
    Other underwriting and operating expenses for the quarter and year totaled $20.3 million and $71.9 million respectively, compared to $20.1 million and $83.2 million for the same periods a year ago. The level of expenses for the year reflect lower contract underwriting expenses due to decreased volume, partially offset by higher holding company expenses including compensation and interest expense.

    (1) "Combined" includes results from U.S. Mortgage Insurance Operations, CMG Mortgage Insurance Company ("CMG"), PMI Australia and PMI Europe.

    (2) "International Operations" includes the results of PMI Australia, PMI Europe and the results of operations in Hong Kong.

    (3) "U.S. Mortgage Insurance Operations" includes the results of PMI Mortgage Insurance Co. and affiliated U.S. reinsurance companies and equity in earnings from CMG.

    (4) "Financial Guaranty" includes the equity in earnings from FGIC and RAM Re.

    (5) "Other" includes the results from the holding company, equity in earnings/losses from SPS, limited partnerships, PMI Mortgage Services Co., dormant insurance companies and the discontinued operations of APTIC.

    (6) "Domestic" includes results from U.S. Mortgage Insurance Operations and CMG.

    ABOUT THE PMI GROUP, INC.

    The PMI Group, Inc. (NYSE:PMI) headquartered in Walnut Creek, California is an international provider of credit enhancement products that promotes homeownership and facilitates mortgage transactions in the capital markets. Through its wholly owned subsidiaries and unconsolidated strategic investments, the Company offers residential mortgage insurance and credit enhancement products domestically and internationally as well as financial guaranty insurance and reinsurance.
    The Company is an advocate of affordable housing and supports a number of organizations that foster greater access to affordable housing. The Company's approach to affordable housing lending is to develop products and services that assist responsible borrowers who may not qualify for mortgage loans under traditional underwriting practices.

    Cautionary Statement: Statements in this press release that are not historical facts, and that relate to future plans, events or performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to the Company's field office consolidation. Readers are cautioned that these forward-looking statements by their nature involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many factors could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements, including, among others, refinements of our estimates of savings and charges as we implement the office consolidation, conditions affecting the Company's mortgage insurance operations, and general economic conditions. Risks and uncertainties that could affect the Company are discussed in our Form 10-Q for the quarter ended June 30, 2004.

THE PMI GROUP, INC. AND SUBSIDIARIES

FINANCIAL RESULTS AND STATISTICAL INFORMATION FOR THE PERIOD ENDED DECEMBER 31, 2004

---------------------------------------------------------------------- Contents ----------------------------------------------------------------------

Consolidated Statements of Operations and Balance Sheets

Business Segments Results of Operations - Three Months Ended December 31, 2004 and 2003

Business Segments Results of Operations - Year Ended December 31, 2004 and 2003

Business Segments Balance Sheets

U.S. Mortgage Insurance Operations Analysis of Loss Reserves and Statistical Information

U.S. Mortgage Insurance Operations and CMG Mortgage Insurance Company Statistical Information

PMI Australia and PMI Europe Statistical Information

Appendix A - U.S. Mortgage Insurance Operations Supplemental Statistical Information

Appendix B - PMI Australia and PMI Europe Quarterly Financial Information

Appendix C - Business Segment Results of Operations by Quarter

Please refer to the following when noted:

(1) The Company's equity earnings in unconsolidated subsidiaries include FGIC Corporation, SPS Holding Corp. ("SPS"), CMG Mortgage Insurance Company ("CMG"), RAM Reinsurance, other limited partnership interests and the trust subsidiary that issued the Company's preferred securities. The equity investment in SPS was reclassified from investments in unconsolidated subsidiaries to equity investment held for sale.

(2) In January 2005, PMI signed a letter of intent with Credit Suisse First Boston (USA), Inc. (CSFB) pursuant to which CSFB has an option to acquire 100% of PMI's outstanding stock of SPS. Based on the proposed purchase price, PMI recorded a write-down of its equity investment in SPS for $20.4 million. The write-down was recorded as a realized loss of discontinued operations of equity investment due to PMI's decision to sell SPS. According to Statement of Financial Accounting Standards No. 144, Accounting for the Impairment and Disposal of Long-Lived Assets, we are not permitted to present the disposal of equity method investments as discontinued operations.

(3) The $2.6 million refund relates to the settlement in 2001 of the Baynham class action litigation.

(4) EITF Issue No. 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings per Share, states that the dilutive effect of contingently convertible debt and other instruments ("CoCo's") must be included in dilutive earnings per share regardless of whether the triggering contingency based on the market price of the issuer's shares has been satisfied. This change in accounting principle was applied on a retroactive basis. This EITF issue is effective for all periods ending after December 15, 2004. The EITF resulted in additional dilution to the Company's diluted earnings per share by affecting the Company's $360.0 million 2.5% senior convertible debentures, which are CoCo's. For purposes of determining dilutive earnings per share, the interest expense, net of tax, was added back to net income and an additional 8.15 million common shares was added to diluted shares outstanding for the year ended December 31, 2004. Inclusion of the CoCo's in diluted shares outstanding resulted in a decrease to diluted earnings per share of $0.24 for the year ended December 31, 2004.

(5) The operating results, assets and liabilities of American Pioneer Title Insurance Company ("APTIC") were reflected as discontinued operations in the fourth quarter of 2003 with prior period financial information reclassified accordingly. The Company completed its sale of APTIC in March 2004 and recorded a gain on sale of discontinued operations of $30.1 million, net of $17.1 million of income tax expense. In December 2004, the Company reduced its gain on sale of APTIC by $1.1 million, net of a $0.6 million income tax benefit, due to a pension settlement loss triggered by former APTIC pension plan participants receiving lump sum payments during the year.

(6) U.S. Mortgage Insurance Operations include the operating results of PMI Mortgage Insurance Co. and affiliated U.S. mortgage insurance and reinsurance Companies. CMG and its affiliates are included under the equity method of accounting in equity in earnings from unconsolidated subsidiaries.

(7) International Operations include PMI Australia, PMI Europe and PMI's Hong Kong reinsurance operations.

(8) Financial Guaranty represents our equity investments of FGIC and RAM Reinsurance.

(9) The "Other" segment includes other income and related operating expenses of PMI Mortgage Services Co.; investment income, interest expense and corporate overhead of The PMI Group; the results of Commercial Loans Insurance Co. and WMAC Credit Insurance Corporation; equity in earnings from unconsolidated subsidiaries and limited partnerships; a realized loss from discontinued operations of our equity investment in SPS; and the results from discontinued operations of APTIC.

(10)The expense ratio is the ratio, expressed as a percentage, of the sum of amortization of policy acquisition costs and other underwriting expenses to net premiums written. The loss ratio is the ratio, expressed as a percentage, of the sum of losses and loss adjustment expenses to premiums earned.

(11)Pool insurance includes modified pool, GSE pool, old pool and all other pool insurance products for U.S. Mortgage Insurance Operations.

(12)Statutory risk-to-capital ratio for PMI Mortgage Insurance Co.

Note The interim financial and statistical information contained in this material are unaudited. Certain prior year information has been reclassified to conform to the current quarters' presentation.

THE PMI GROUP, INC. AND SUBSIDIARIES

---------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------------------------------

Three Months Ended Year Ended December 31, December 31, ------------------- -------------------- 2004 2003 2004 2003 --------- --------- ---------- --------- (Dollars in thousands, except per share data)

Net premiums written $200,103 $350,850 $771,362 $876,001 ========= ========= ========== =========

Revenues Premiums earned $202,312 $182,398 $770,399 $696,928 Net investment income 42,991 47,183 168,609 149,779 Equity in earnings from unconsolidated subsidiaries (1) 19,750 3,671 83,554 4,597 Net realized investment gains (275) (4,213) 2,621 84 Realized loss from discontinued operations of equity investment (2) (20,420) - (20,420) - Other income 8,404 3,710 33,473 40,333 --------- --------- ---------- --------- Total revenues 252,762 232,749 1,038,236 891,721 --------- --------- ---------- ---------

Losses and expenses Losses and loss adjustment expenses 60,092 59,371 237,282 209,088 Amortization of policy acquisition costs 19,650 23,236 85,216 89,327 Other underwriting and operating expenses 57,765 46,273 201,781 175,693 Field operations restructuring charge - - 2,914 - Legal settlement refund (3) - - (2,574) - Interest expense and distributions on mandatorily redeemable preferred securities 8,652 7,846 34,626 24,491 --------- --------- ---------- --------- Total losses and expenses 146,159 136,726 559,245 498,599 --------- --------- ---------- ---------

Income from continuing operations before income taxes 106,603 96,023 478,991 393,122 Income taxes from continuing operations 24,952 30,086 112,459 118,814 --------- --------- ---------- --------- Income from continuing operations after income taxes 81,651 65,937 366,532 274,308 --------- --------- ---------- ---------

Income from discontinued operations before income taxes (5) - 10,277 5,756 26,893 Income taxes from discontinued operations (5) - 1,396 1,958 7,186 --------- --------- ---------- --------- Income from discontinued operations after income taxes (5) - 8,881 3,798 19,707 --------- --------- ---------- ---------

Gain on sale of discontinued operations, net of income taxes (5) (1,105) - 29,003 - --------- --------- ---------- ---------

Income before extraordinary item 80,546 74,818 399,333 294,015 Extraordinary gain on write- off of negative goodwill at FGIC, net of income taxes - 5,418 - 5,418 --------- --------- ---------- ---------

Net income $80,546 $80,236 $399,333 $299,433 ========= ========= ========== =========

Diluted weighted average common shares outstanding (shares in thousands) (4) 104,436 102,610 105,231 99,198 ========= ========= ========== =========

Diluted net income per share $0.79 $0.80 $3.87 $3.09 ========= ========= ========== =========

---------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS ----------------------------------------------------------------------

December 31, December 31, 2004 2003 ------------ ------------ (Dollars in thousands, except per share data) Assets Cash and investments, at fair value $3,621,550 $3,202,881 Investments in unconsolidated subsidiaries 911,604 937,846 Equity investment held for sale (2) 109,519 - Related party receivables 18,439 27,840 Reinsurance receivable, reinsurance recoverable and prepaid premiums 49,657 56,799 Deferred policy acquisition costs 92,438 102,074 Other assets 342,760 348,987 Assets - discontinued operations (5) - 117,862 ------------ ------------ Total assets $5,145,967 $4,794,289 ============ ============

Liabilities Reserve for losses and loss adjustment expenses $364,847 $346,939 Unearned premiums 484,815 469,001 Long-term debt 819,529 819,543 Other liabilities 339,021 330,560 Liabilities - discontinued operations (5) - 44,217 ------------ ------------ Total liabilities 2,008,212 2,010,260

Shareholders' equity 3,137,755 2,784,029 ------------ ------------

Total liabilities and shareholders' equity $5,145,967 $4,794,289 ============ ============

Basic shares issued and outstanding 94,025 95,162 ============ ============

Book value per share $33.37 $29.26 ============ ============

THE PMI GROUP, INC. AND SUBSIDIARIES

---------------------------------------------------------------------- BUSINESS SEGMENTS RESULTS OF OPERATIONS ----------------------------------------------------------------------

U.S. Mortgage Interna- Insurance tional Financial Consoli- Operations Operations Guaranty Other dated (6) (7) (8) (9) Total -----------------------------------------------------

Three Months Ended December 31, 2004 ----------------------------------------------------- (Dollars in thousands)

Net premiums written $153,916 $46,156 $- $31 $200,103 =========== =========== ========= ========= =========

Revenues Premiums earned $168,313 $33,979 $- $20 $202,312 Net investment income 25,496 12,789 - 4,706 42,991 Equity in earnings (losses) from unconsolidated subsidiaries (1) 4,569 - 16,156 (975) 19,750 Net realized investment losses (12) (263) - - (275) Realized loss from discontinued operations of equity investment (2) - - - (20,420) (20,420) Other income 15 3,044 - 5,345 8,404 ----------- ----------- --------- --------- --------- Total revenues 198,381 49,549 16,156 (11,324) 252,762 ----------- ----------- --------- --------- ---------

Losses and expenses Losses and loss adjustment expenses 58,355 1,737 - - 60,092 Amortization of policy acquisition costs 16,585 3,065 - - 19,650 Other underwriting and operating expenses 27,258 10,235 - 20,272 57,765 Field operations restructuring charge - - - - - Interest expense 12 - - 8,640 8,652 ----------- ----------- --------- --------- --------- Total losses and expenses 102,210 15,037 - 28,912 146,159 ----------- ----------- --------- --------- ---------

Income (loss) from continuing operations before income taxes 96,171 34,512 16,156 (40,236) 106,603 Income tax (benefit) from continuing operations 26,328 10,274 1,689 (13,339) 24,952 ----------- ----------- --------- --------- --------- Income (loss) from continuing operations after income taxes 69,843 24,238 14,467 (26,897) 81,651 ----------- ----------- --------- --------- ---------

Loss on sale of discontinued operations, net of tax benefit (5) - - - (1,105) (1,105) ----------- ----------- --------- --------- ---------

Net income (loss) $69,843 $24,238 $14,467 $(28,002) $80,546 =========== =========== ========= ========= =========

Expense ratio (10) 28.5% 28.8% Loss ratio (10) 34.7% 5.1% Combined ratio 63.2% 33.9%

Three Months Ended December 31, 2003 ----------------------------------------------------- (Dollars in thousands)

Net premiums written $252,857 $97,962 $- $31 $350,850 =========== =========== ========= ========= =========

Revenues Premiums earned $145,209 $37,168 $- $21 $182,398 Net investment income 35,611 9,042 - 2,530 47,183 Equity in earnings (losses) from unconsolidated subsidiaries (1) 3,770 - 3,862 (3,961) 3,671 Net realized investment gains (losses) (3,860) (675) - 322 (4,213) Other income (loss) 60 (260) - 3,910 3,710 ----------- ----------- --------- --------- --------- Total revenues 180,790 45,275 3,862 2,822 232,749 ----------- ----------- --------- --------- ---------

Losses and expenses Losses and loss adjustment expenses 58,220 1,151 - - 59,371 Amortization of policy acquisition costs 20,274 2,962 - - 23,236 Other underwriting and operating expenses 19,529 6,653 - 20,091 46,273 Interest expense and distributions on redeemable preferred securities 29 5 - 7,812 7,846 ----------- ----------- --------- --------- --------- Total losses and expenses 98,052 10,771 - 27,903 136,726 ----------- ----------- --------- --------- ---------

Income (loss) from continuing operations before income taxes 82,738 34,504 3,862 (25,081) 96,023 Income tax (benefit) from continuing operations 23,351 10,316 691 (4,272) 30,086 ----------- ----------- --------- --------- --------- Income (loss) from continuing operations after income taxes 59,387 24,188 3,171 (20,809) 65,937 ----------- ----------- --------- --------- ---------

Income from discontinued operations before income taxes (5) - - - 10,277 10,277 Income taxes from discontinued operations (5) - - - 1,396 1,396 ----------- ----------- --------- --------- --------- Income from discontinued operations after income taxes (5) - - - 8,881 8,881 ----------- ----------- --------- --------- ---------

Income before extraordinary item 59,387 24,188 3,171 (11,928) 74,818 Extraordinary gain on write- off of negative goodwill at FGIC, net of income taxes - - 5,418 - 5,418 ----------- ----------- --------- --------- --------- - - - - Net income (loss) $59,387 $24,188 $8,589 $(11,928) $80,236 =========== =========== ========= ========= =========

Expense ratio (10) 15.7% 9.8% Loss ratio (10) 40.1% 3.1% Combined ratio 55.8% 12.9%

---------------------------------------------------------------------- BUSINESS SEGMENTS RESULTS OF OPERATIONS ----------------------------------------------------------------------

U.S. Mortgage Interna- Insurance tional Financial Consoli- Operations Operations Guaranty Other dated (6) (7) (8) (9) Total ------------------------------------------------------

Year Ended December 31, 2004 ------------------------------------------------------ (Dollars in thousands)

Net premiums written $598,119 $173,178 $- $65 $771,362 =========== =========== ========= ========= ==========

Revenues Premiums earned $634,004 $136,321 $- $74 $770,399 Net investment income 102,230 47,091 - 19,288 168,609 Equity in earnings from unconsolidated subsidiaries (1) 15,280 - 67,844 430 83,554 Net realized investment gains (losses) 2,582 595 - (556) 2,621 Realized loss from discontinued operations of equity investment (2) - - - (20,420) (20,420) Other income 47 7,342 - 26,084 33,473 ----------- ----------- --------- --------- ---------- Total revenues 754,143 191,349 67,844 24,900 1,038,236 ----------- ----------- --------- --------- ----------

Losses and expenses Losses and loss adjustment expenses 233,157 4,125 - - 237,282 Amortization of policy acquisition costs 72,129 13,087 - - 85,216 Other underwriting and operating expenses 98,473 31,388 - 71,920 201,781 Field operations restructuring charge 2,914 - - - 2,914 Legal settlement refund (3) (2,574) - - - (2,574) Interest expense 62 73 - 34,491 34,626 ----------- ----------- --------- --------- ---------- Total losses and expenses 404,161 48,673 - 106,411 559,245 ----------- ----------- --------- --------- ----------

Income (loss) from continuing operations before income taxes 349,982 142,676 67,844 (81,511) 478,991 Income tax (benefit) from continuing operations 95,467 42,761 7,142 (32,911) 112,459 ----------- ----------- --------- --------- ---------- Income (loss) from continuing operations after income taxes 254,515 99,915 60,702 (48,600) 366,532 ----------- ----------- --------- --------- ----------

Income from discontinued operations before income taxes (5) - - - 5,756 5,756 Income taxes from discontinued operations (5) - - - 1,958 1,958 ----------- ----------- --------- --------- ---------- Income from discontinued operations after income taxes (5) - - - 3,798 3,798 ----------- ----------- --------- --------- ----------

Gain on sale of discontinued operations, net of income taxes (5) - - - 29,003 29,003 ----------- ----------- --------- --------- ----------

Net income (loss) $254,515 $99,915 $60,702 $(15,799) $399,333 =========== =========== ========= ========= ==========

Expense ratio (10) 28.5% 25.7% Loss ratio (10) 36.8% 3.0% Combined ratio 65.3% 28.7%

Year Ended December 31, 2003 ------------------------------------------------------ (Dollars in thousands)

Net premiums written $685,053 $190,869 $- $79 $876,001 =========== =========== ========= ========= ==========

Revenues Premiums earned $592,814 $104,028 $- $86 $696,928 Net investment income 103,083 31,314 - 15,382 149,779 Equity in earnings (losses) from unconsolidated subsidiaries (1) 13,574 - 6,587 (15,564) 4,597 Net realized investment gains (losses) 1,688 268 - (1,872) 84 Other income 138 130 - 40,065 40,333 ----------- ----------- --------- --------- ---------- Total revenues 711,297 135,740 6,587 38,097 891,721 ----------- ----------- --------- --------- ----------

Losses and expenses Losses and loss adjustment expenses (reversals) 214,684 (5,596) - - 209,088 Amortization of policy acquisition costs 78,877 10,450 - - 89,327 Other underwriting and operating expenses 72,173 20,322 - 83,198 175,693 Interest expense and distributions on redeemable preferred securities 167 5 - 24,319 24,491 ----------- ----------- --------- --------- ---------- Total losses and expenses 365,901 25,181 - 107,517 498,599 ----------- ----------- --------- --------- ----------

Income (loss) from continuing operations before income taxes 345,396 110,559 6,587 (69,420) 393,122 Income tax (benefit) from continuing operations 99,903 31,912 1,645 (14,646) 118,814 ----------- ----------- --------- --------- ---------- Income (loss) from continuing operations after income taxes 245,493 78,647 4,942 (54,774) 274,308 ----------- ----------- --------- --------- ----------

Income from discontinued operations before income taxes (5) - - - 26,893 26,893 Income taxes from discontinued operations (5) - - - 7,186 7,186 ----------- ----------- --------- --------- ---------- Income from discontinued operations after income taxes (5) - - - 19,707 19,707 ----------- ----------- --------- --------- ----------

Income before extraordinary item 245,493 78,647 4,942 (35,067) 294,015 Extraordinary gain on write- off of negative goodwill at FGIC, net of income taxes - - 5,418 - 5,418 ----------- ----------- --------- --------- ----------

Net income (loss) $245,493 $78,647 $10,360 $(35,067) $299,433 =========== =========== ========= ========= ==========

Expense ratio (10) 22.0% 16.1% Loss ratio (10) 36.2% -5.4% Combined ratio 58.3% 10.7%

THE PMI GROUP, INC. AND SUBSIDIARIES

---------------------------------------------------------------------- BUSINESS SEGMENTS BALANCE SHEETS ----------------------------------------------------------------------

U.S. Mortgage Interna- Insurance tional Financial Consoli- Operations Operations Guaranty Other dated (6) (7) (8) (9) Total -------------------------------------------------------

December 31, 2004 ------------------------------------------------------- (Dollars in thousands) Assets Cash and investments, at fair value $2,132,300 $1,030,751 $- $458,499 $3,621,550 Investments in unconsolidated subsidiaries 112,456 - 774,880 24,268 911,604 Equity investment held for sale (2) - - - 109,519 109,519 Related party receivables 1,633 - - 16,806 18,439 Reinsurance receivable, recoverable and prepaid premiums 31,110 18,547 - - 49,657 Deferred policy acquisition costs 53,998 38,440 - - 92,438 Other assets 208,806 26,460 - 107,494 342,760 ----------- ----------- --------- --------- ----------- Total assets $2,540,303 $1,114,198 $774,880 $716,586 $5,145,967 =========== =========== ========= ========= ===========

Liabilities Reserve for losses and loss adjustment expenses $338,620 $26,224 $- $3 $364,847 Unearned premiums 152,685 332,091 - 39 484,815 Long-term debt - - - 819,529 819,529 Other liabilities 237,431 71,740 12,424 17,426 339,021 ----------- ----------- --------- --------- ----------- Total liabilities 728,736 430,055 12,424 836,997 2,008,212

Shareholders' equity 1,811,567 684,143 762,456 (120,411) 3,137,755 ----------- ----------- --------- --------- -----------

Total liabilities and shareholders' equity $2,540,303 $1,114,198 $774,880 $716,586 $5,145,967 =========== =========== ========= ========= ===========

December 31, 2003 ------------------------------------------------------- (Dollars in thousands) Assets Cash and investments, at fair value $2,042,152 $836,570 $- $324,159 $3,202,881 Investments in unconsolidated subsidiaries 97,389 - 700,828 139,629 937,846 Related party receivables 1,698 - - 26,142 27,840 Reinsurance receivable, recoverable and prepaid premiums 39,774 17,025 - - 56,799 Deferred policy acquisition costs 69,656 32,418 - - 102,074 Other assets 217,063 19,792 - 112,132 348,987 Assets - discontinued operations (5) - - - 117,862 117,862 ----------- ----------- --------- --------- ----------- Total assets $2,467,732 $905,805 $700,828 $719,924 $4,794,289 =========== =========== ========= ========= ===========

Liabilities Reserve for losses and loss adjustment expenses $325,262 $21,674 $- $3 $346,939 Unearned premiums 181,854 287,099 - 48 469,001 Long-term debt - - - 819,543 819,543 Other liabilities 160,959 52,067 6,085 111,449 330,560 Liabilities - discontinued operations (5) - - - 44,217 44,217 ----------- ----------- --------- --------- ----------- Total liabilities 668,075 360,840 6,085 975,260 2,010,260

Shareholders' equity 1,799,657 544,965 694,743 (255,336) 2,784,029 ----------- ----------- --------- --------- -----------

Total liabilities and shareholders' equity $2,467,732 $905,805 $700,828 $719,924 $4,794,289 =========== =========== ========= ========= ===========

THE PMI GROUP, INC. AND SUBSIDIARIES

---------------------------------------------------------------------- U.S. MORTGAGE INSURANCE OPERATIONS ANALYSIS OF RESERVE FOR LOSSES AND LAE (6) ----------------------------------------------------------------------

Dec. 31, 2004 Sept. 30, 2004 Dec. 31, 2003 ----------------- ----------------- --------------------- Reserve Reserve Reserve Loans for Loans for Loans for in Losses in Losses in Losses Default and LAE Default and LAE Default and LAE ------- --------- ------- --------- ----------- --------- (Dollars in thousands)

Primary insurance 39,054 $306,023 37,111 $301,643 37,445 $292,531 Pool insurance 17,186 32,597 16,890 33,106 16,763 32,731 ------- --------- ------- --------- ----------- --------- Total 56,240 $338,620 54,001 $334,749 54,208 $325,262 ======= ========= ======= ========= =========== =========

Reconciliation of Reserve for Losses and LAE --------------------------------------------

Dec. 31, Sept. 30, Reserve 2004 2004 Change --------- ----------- --------- (Dollars in thousands) Gross reserve for losses and LAE: Primary insurance $306,023 $301,643 $4,380 Pool insurance 32,597 33,106 (509) --------- ----------- --------- Total gross reserve for losses and LAE 338,620 334,749 3,871

Ceded reserve for losses: Primary insurance (2,289) (2,634) 345 Pool insurance (117) (117) - --------- ----------- --------- Total ceded reserve for losses (2,406) (2,751) 345 --------- ----------- ---------

Net reserve for losses and LAE $336,214 $331,998 $4,216 ========= =========== =========

---------------------------------------------------------------------- U.S. MORTGAGE INSURANCE OPERATIONS STATISTICAL INFORMATION (6) ----------------------------------------------------------------------

Three Months Ended Year Ended December 31, December 31, ------------------- ------------------- 2004 2003 2004 2003 --------- --------- --------- ---------

Flow insurance written (in millions) $8,259 $10,510 $36,257 $50,236 Bulk insurance written (in millions) 2,260 1,363 4,956 7,065 --------- --------- --------- --------- Primary new insurance written (in millions) $10,519 $11,873 $41,213 $57,301

Primary new risk written (in millions) $2,741 $2,890 $10,680 $13,532

Pool insurance written (in millions) (11) $3,043 $8,429 $10,454 $15,962

Pool risk written (in millions) (11) $84 $163 $251 $394

Product mix as a % of new insurance written: 97% LTV's 15% 14% 12% 11% 95% LTV's 26% 30% 30% 28% 90% LTV's 36% 37% 38% 39% 95% LTV's with greater than or equal to 30% coverage 22% 23% 25% 21% 90% LTV's with greater than or equal to 25% coverage 31% 29% 32% 29% ARMs 33% 11% 25% 9% Monthlies 98% 89% 98% 91% Refinances 33% 34% 32% 45% Bulk transactions 21% 40% 12% 18%

Premiums written (in thousands): Gross premiums written $197,953 $303,945 $767,399 $847,195 Ceded premiums, net of assumed premiums (40,613) (41,844) (155,274) (136,442) Refunded premiums (3,424) (9,244) (14,006) (25,700) --------- --------- --------- --------- Net premiums written 153,916 252,857 598,119 685,053 Change in unearned premiums 14,397 (107,648) 35,885 (92,239) --------- --------- --------- --------- Net premiums earned $168,313 $145,209 $634,004 $592,814 ========= ========= ========= =========

THE PMI GROUP, INC. AND SUBSIDIARIES

---------------------------------------------------------------------- U.S. MORTGAGE INSURANCE OPERATIONS STATISTICAL INFORMATION (6) ---------------------------------------------------------------------- Dec. 31, Sept. 30, Dec. 31, 2004 2004 2003 --------- --------- ---------

Primary insurance in force (in millions) $105,321 $104,782 $105,241

Primary risk in force (in millions) $25,658 $25,259 $24,668

Pool risk in force (in millions) (11) $2,408 $2,389 $2,858

Risk-to-capital ratio (12) 8.2 to 1 8.6 to 1 9.1 to 1

Insured primary loans 803,236 805,859 827,225

Persistency 60.9% 59.5% 44.6%

Primary loans in default 39,054 37,111 37,445

Primary default rate 4.86% 4.61% 4.53%

Primary claims paid (year-to-date in thousands) $193,178 $145,434 $176,890

Number of primary claims paid (year-to- date) 8,335 6,354 7,501

Average primary claim size (year-to-date in thousands) $23.2 $22.9 $23.6

Percentage of NIW subject to captive reinsurance arrangements (year-to-date) 55.7% 56.1% 54.1%

Percentage of IIF subject to captive reinsurance arrangements (year-to-date) 53.7% 53.1% 50.0%

---------------------------------------------------------------------- CMG MORTGAGE INSURANCE COMPANY STATISTICAL INFORMATION ----------------------------------------------------------------------

Dec. 31, Sept. 30, Dec. 31, 2004 2004 2003 --------- --------- ---------

Primary new insurance written (year-to- date in millions) $5,355 $4,074 $7,015

Primary insurance in force (in millions) $14,037 $14,018 $12,560

Primary risk in force (in millions) $3,219 $3,176 $2,772

Insured primary loans 105,568 105,390 98,412

Persistency 69.1% 70.3% 50.8%

Primary loans in default 666 625 516

Primary default rate (year-to-date) 0.63% 0.59% 0.52%

Primary claims paid (year-to-date in thousands) $5,111 $3,751 $3,026

Number of primary claims paid (year-to- date) 244 174 148

Average primary claims size (year-to- date in thousands) $20.9 $21.6 $20.4

THE PMI GROUP, INC. AND SUBSIDIARIES

---------------------------------------------------------------------- PMI AUSTRALIA STATISTICAL INFORMATION ----------------------------------------------------------------------

Dec. 31, Sept. 30, Dec. 31, 2004 2004 2003 --------- --------- ---------

Net premium written (year-to-date in thousands) $151,164 $112,801 $127,750

Premium earned (year-to-date in thousands) $109,071 $81,937 $85,050

Flow insurance written (year-to-date in millions) $19,540 $14,960 $19,383 RMBS insurance written (year-to-date in millions) 14,669 11,916 6,044 --------- --------- --------- New insurance written (year-to-date in millions) $34,209 $26,876 $25,427

Insurance in force (in millions) $113,628 $102,527 $87,909

Risk in force (in millions) $103,135 $92,979 $79,294

Policies in force 926,073 916,070 712,866

Loans in default 1,020 1,101 1,207

Delinquency rate 0.11% 0.12% 0.17%

Claims paid (year-to-date in thousands) $1,111 $634 $2,663

Number claims paid (year-to-date) 65 45 223

Average claim size (year-to-date in thousands) $17.1 $14.1 $11.9

---------------------------------------------------------------------- PMI EUROPE STATISTICAL INFORMATION ----------------------------------------------------------------------

Dec. 31, Sept. 30, Dec. 31, 2004 2004 2003 --------- --------- ---------

Net premium written (year-to-date in thousands) $9,568 $7,426 $55,418

Premium earned (year-to-date in thousands) $20,944 $15,575 $13,685

New credit default swap written (year- to-date in millions) $2,603 $2,603 $6,440

New reinsurance written (year-to-date in millions) $- $- $17,034

Insurance in force (in millions) $34,332 $32,950 $31,558

Risk in force (in millions) $2,747 $3,244 $3,096

Claims paid (year-to-date in thousands) $979 $899 $834

Number claims paid (year-to-date) 77 66 67

THE PMI GROUP, INC. AND SUBSIDIARIES

---------------------------------------------------------------------- APPENDIX A - U.S. MORTGAGE INSURANCE OPERATIONS SUPPLEMENTAL STATISTICAL INFORMATION (6) ----------------------------------------------------------------------

12/31/2004 9/30/2004 6/30/2004 3/31/2004 12/31/2003 ----------- ---------- ---------- ---------- -----------

Primary insurance in force (in millions) Flow $93,263 $93,601 $92,968 $93,161 $93,279 Bulk 12,058 11,181 11,238 11,143 11,962 ----------- ---------- ---------- ---------- ----------- Total $105,321 $104,782 $104,206 $104,304 $105,241

Primary risk in force (in millions) Flow $22,885 $22,741 $22,342 $22,143 $22,047 Bulk 2,773 2,518 2,460 2,402 2,621 ----------- ---------- ---------- ---------- ----------- Total $25,658 $25,259 $24,802 $24,545 $24,668

Primary policies in force 803,236 805,859 807,822 816,624 827,225

Primary risk in force - credit score distribution Flow 619-575 6.2% 6.4% 6.6% 6.8% 7.1% 574 or below 1.8% 1.9% 2.0% 2.1% 2.2%

Bulk 619-575 21.1% 21.6% 21.0% 21.3% 21.6% 574 or below 13.0% 12.7% 12.2% 12.7% 12.8%

Total 619-575 7.8% 7.9% 8.0% 8.3% 8.6% 574 or below 3.0% 3.0% 3.0% 3.1% 3.3%

Primary average loan size (in thousands) Flow $131.3 $130.5 $129.3 $128.1 $127.4 Bulk $129.8 $127.1 $126.9 $124.9 $126.1 Total $131.1 $130.1 $129.0 $127.7 $127.2

Loss severity - primary (quarterly) Flow 84.9% 77.4% 83.0% 82.1% 81.6% Bulk 84.6% 78.8% 83.5% 82.1% 83.4% Total 84.8% 77.8% 83.1% 82.1% 82.2%

Alt-A primary insurance in force (in millions)

With FICO scores of 660 and above $10,250 $9,421 $8,590 $7,623 $7,167 With FICO scores below 660 and above 619 2,029 1,836 1,648 1,330 1,233 ----------- ---------- ---------- ---------- ----------- Total Alt-A primary insurance in force $12,279 $11,257 $10,238 $8,953 $8,400

---------------------------------------------------------------------- NEW INSURANCE WRITTEN AND INSURANCE IN FORCE ANALYSIS ----------------------------------------------------------------------

12/31/2004 9/30/2004 6/30/2004 3/31/2004 12/31/2003 ----------- ---------- ---------- ---------- -----------

FICO greater than 700 and LTV greater than 80 (in millions)

Primary new insurance written (year-to- date) $16,643 $12,788 $8,633 $3,826 $26,172 Primary insurance in force $43,801 $43,862 $43,640 $43,660 $43,800

Total portfolio (in millions)

Primary new insurance written (year-to- date) $41,213 $30,695 $20,205 $8,799 $57,301 Primary insurance in force $105,321 $104,782 $104,206 $104,304 $105,241

FICO greater than 700 and LTV greater than 80 as a percentage of total portfolio

Primary new insurance written (year-to- date) 40.4% 41.7% 42.7% 43.5% 45.7% Primary insurance in force 41.6% 41.9% 41.9% 41.9% 41.6%

THE PMI GROUP, INC. AND SUBSIDIARIES

---------------------------------------------------------------------- APPENDIX B - PMI AUSTRALIA AND PMI EUROPE QUARTERLY FINANCIAL INFORMATION ----------------------------------------------------------------------

---------------------------------------------------------------------- PMI AUSTRALIA ----------------------------------------------------------------------

12/31/04 9/30/04 6/30/04 3/31/04 ----------- ----------- ----------- --------- (Australian $ in thousands, unless otherwise noted)

Income Statement Components - Quarter Ended

Premiums earned $35,819 $37,109 $37,308 $37,790 Net investment income $14,087 $13,098 $12,677 $12,139 Total expenses $13,624 $13,413 $12,799 $12,030 Net income $25,447 $24,725 $26,832 $26,518

Net income (US$ in thousands) $19,272 $17,554 $19,219 $20,265

Balance Sheet Components

Assets

Cash and investments, at fair value $1,027,236 $973,479 $924,330 $892,864 Total assets $1,116,874 $1,068,080 $1,013,102 $976,723

Liabilities and Shareholders' Equity

Loss reserves $12,547 $13,692 $13,556 $13,537 Unearned premiums $378,981 $364,120 $346,748 $330,477 Shareholders' equity $673,124 $642,585 $607,781 $586,842

12/31/03 9/30/03 6/30/03 3/31/03 ----------- ----------- ----------- --------- (Australian $ in thousands, unless otherwise noted)

Income Statement Components - Quarter Ended

Premiums earned $36,766 $32,855 $30,811 $29,103 Net investment income $9,235 $12,309 $9,525 $8,396 Total expenses $12,160 $(216) $9,282 $8,141 Net income $21,441 $31,993 $21,412 $20,335

Net income (US$ in thousands) $15,511 $21,073 $13,746 $12,059

Balance Sheet Components

Assets

Cash and investments, at fair value $853,920 $816,143 $777,701 $737,605 Total assets $935,904 $891,787 $853,196 $813,073

Liabilities and Shareholders' Equity

Loss reserves $13,536 $13,698 $25,450 $27,541 Unearned premiums $321,441 $297,042 $277,921 $265,419 Shareholders' equity $556,329 $539,141 $515,622 $488,032

---------------------------------------------------------------------- PMI EUROPE ----------------------------------------------------------------------

12/31/04 9/30/04 6/30/04 3/31/04 ------------ ------------ ------------ ------------ (Euro EUR in thousands, unless otherwise noted)

Income Statement Components - Quarter Ended

Premiums earned EUR 4,140 EUR 4,233 EUR 4,172 EUR 4,295 Net investment income EUR 1,435 EUR 2,294 EUR 1,642 EUR 2,198 Total expenses EUR 3,679 EUR 1,476 EUR 1,462 EUR 1,768 Net income EUR 2,703 EUR 3,942 EUR 3,535 EUR 3,781

Net income (US$ in thousands) $3,489 $4,822 $4,260 $4,726

Balance Sheet Components

Assets

Cash and investments, at fair value EUR 169,165 EUR 164,558 EUR 161,129 EUR 162,621 Total assets EUR 179,134 EUR 175,731 EUR 172,402 EUR 170,600

Liabilities and Shareholders' Equity

Loss reserves EUR 12,126 EUR 10,656 EUR 10,497 EUR 10,031 Unearned premiums EUR 26,859 EUR 29,363 EUR 31,748 EUR 33,903 Shareholders' equity EUR 121,494 EUR 117,142 EUR 111,691 EUR 109,386

12/31/03 9/30/03 6/30/03 3/31/03 ------------ ------------ ------------ ------------ (Euro EUR in thousands, unless otherwise noted)

Income Statement Components - Quarter Ended

Premiums earned EUR 7,765 EUR 1,283 EUR 1,867 EUR 792 Net investment income EUR 1,181 EUR 1,491 EUR 974 EUR 1,139 Total expenses EUR 1,723 EUR 1,144 EUR 1,376 EUR 814 Net income EUR 5,955 EUR 1,299 EUR 1,329 EUR 818

Net income (US$ in thousands) $7,089 $1,469 $1,533 $874

Balance Sheet Components

Assets

Cash and investments, at fair value EUR 154,369 EUR 98,847 EUR 94,132 EUR 91,245 Total assets EUR 160,891 EUR 100,878 EUR 100,302 EUR 95,688

Liabilities and Shareholders' Equity

Loss reserves EUR 9,624 EUR 2,109 EUR 1,956 EUR 1,021 Unearned premiums EUR 36,029 EUR 183 EUR 566 EUR 281 Shareholders' equity EUR 100,524 EUR 95,289 EUR 95,115 EUR 92,326

THE PMI GROUP, INC. AND SUBSIDIARIES

---------------------------------------------------------------------- APPENDIX C - BUSINESS SEGMENT RESULTS OF OPERATIONS BY QUARTER ----------------------------------------------------------------------

2004 --------------------------------------- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter --------------------------------------- --------------------------------------- (Dollars in thousands)

U.S. Mortgage Insurance Operations (6) ----------------------------------------------------------------------

Net premiums written $153,064 $147,407 $143,732 $153,916 ========= ========= ========= =========

Revenues Premiums earned $149,023 $154,392 $162,276 $168,313 Net investment income 24,458 27,944 24,332 25,496 Equity in earnings from unconsolidated subsidiaries (1) 3,328 3,676 3,707 4,569 Net realized investment gains (losses) 1,087 (166) 1,672 (12) Other income (expense) 81 (25) (24) 15 --------- ------------------- --------- Total revenues 177,977 185,821 191,963 198,381 --------- ------------------- ---------

Losses and expenses Losses and loss adjustment expenses 58,956 55,755 60,092 58,355 Amortization of policy acquisition costs 19,433 18,109 18,003 16,585 Other underwriting and operating expenses 24,627 23,799 22,785 27,258 Field operations restructuring charge 1,510 1,089 315 - Legal settlement refund (3) - - (2,574) - Interest expense 21 17 13 12 --------- --------- --------- --------- Total losses and expenses 104,547 98,769 98,634 102,210 --------- --------- --------- ---------

Income before income taxes 73,430 87,052 93,329 96,171 Income taxes 19,822 23,790 25,528 26,328 --------- --------- --------- ---------

Net income (loss) $53,608 $63,262 $67,801 $69,843 ========= ========= ========= =========

International Operations (7) ----------------------------------------------------------------------

Net premiums written $40,323 $43,460 $43,238 $46,156 ========= ========= ========= =========

Revenues Premiums earned $36,259 $33,255 $32,829 $33,979 Net investment income 11,807 10,646 11,848 12,789 Net realized investment gains (losses) 225 377 256 (263) Other income 1,602 2,399 296 3,044 --------- ------------------- --------- Total revenues 49,893 46,677 45,229 49,549 --------- ------------------- ---------

Losses and expenses Losses and loss adjustment expenses 864 777 746 1,737 Amortization of policy acquisition costs 3,662 3,135 3,225 3,065 Other underwriting and operating expenses 6,867 6,940 7,346 10,235 Interest expense 1 60 12 - --------- --------- --------- --------- Total losses and expenses 11,394 10,912 11,329 15,037 --------- --------- --------- ---------

Income before income taxes 38,499 35,765 33,900 34,512 Income taxes 11,470 10,799 10,218 10,274 --------- --------- --------- ---------

Net income (loss) $27,029 $24,966 $23,682 $24,238 ========= ========= ========= =========

Financial Guaranty (8) ----------------------------------------------------------------------

Equity in earnings from unconsolidated subsidiaries (1) $14,928 $19,699 $17,061 $16,156 Income taxes 1,413 2,220 1,820 1,689 --------- --------- --------- ---------

Net income (loss) $13,515 $17,479 $15,241 $14,467 ========= ========= ========= =========

Other (9) ----------------------------------------------------------------------

Net premiums written $17 $9 $9 $31 ========= ========= ========= =========

Revenues Premiums earned $20 $16 $18 $20 Net investment income 3,776 5,032 5,775 4,706 Equity in earnings (losses) from unconsolidated subsidiaries (1) 842 210 353 (975) Net realized investment losses (37) (143) (374) - Realized loss from discontinued operations of equity investment (2) - - - (20,420) Other income 7,168 7,424 6,146 5,345 --------- ------------------- --------- Total revenues 11,769 12,539 11,918 (11,324) --------- ------------------- ---------

Losses and expenses Other underwriting and operating expenses 17,316 17,790 16,545 20,272 Interest expense 8,493 8,745 8,612 8,640 --------- --------- --------- --------- Total losses and expenses 25,809 26,535 25,157 28,912 --------- --------- --------- ---------

Loss from continuing operations before income tax benefit (14,040) (13,996) (13,239) (40,236) --------- --------- --------- --------- Income tax benefit from continuing operations (5,451) (4,964) (9,158) (13,339) --------- --------- --------- --------- Loss from continuing operations after income tax benefit (8,589) (9,032) (4,081) (26,897) --------- --------- --------- ---------

Income from discontinued operations before income taxes 5,756 - - - Income taxes from discontinued operations 1,958 - - - --------- --------- --------- --------- Income from discontinued operations after income taxes 3,798 - - - --------- --------- --------- ---------

Gain on sale of discontinued operations, net of income taxes (5) 30,108 - - (1,105) --------- --------- --------- ---------

Net income (loss) $25,317 $(9,032) $(4,081) $(28,002) ========= ========= ========= =========

--30--NL/sf*

CONTACT: The PMI Group, Inc. Glen Corso, 925-658-6429 (Investors) Matt Nichols, 925-658-6618 (Media)

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: REAL ESTATE BUILDING/CONSTRUCTION INSURANCE EARNINGS SOURCE: The PMI Group, Inc.

Copyright Business Wire 2005