S&P puts PMI on watch

Standard & Poor's said it placed its A counterparty credit rating on PMI Group Inc., the AA counterparty credit and financial strength ratings of PMI Mortgage Insurance Co., PMI Mortgage Insurance Co. Ltd., and PMIMortgage Insurance Ltd. and the AA financial strength rating of PMI Insurance Co. on CreditWatch with negative implications.

The CreditWatch placement follows Thursday's announcement by PMI Group that incurred losses for its domestic mortgage insurance operations will be $350 million in the third quarter of 2007, compared with $80 million in the same period of last year. S&P estimates PMI's reserve per primary domestic default was less than $9,500 as of June 30, compared with an estimated industry median of almost $13,000.

The agency said it does not believe the challenges confronting the mortgage and housing sector pose a solvency risk to PMI and that PMI's reserves, while less conservative than that of its peers, will remain adequate because of the group's very strong loss mitigation capabilities.

S&P's primary concern is PMI's operating performance in the next two years, and the agency said it expects that PMI will report underwriting losses in 2008.

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