Fitch Affirms PMI Group & PMI Mortgage Insurance Co.

CHICAGO -- Fitch Ratings has affirmed the 'AA+' insurer financial strength (IFS) ratings of PMI Mortgage Insurance Co. (PMI), the primary mortgage insurance subsidiary of The PMI Group, Inc. (TPG). Fitch also affirmed the 'A+' senior debt and long-term issuer ratings of TPG and the 'A' rating assigned to the trust preferred securities of PMI Capital I. The Rating Outlook is Stable for all ratings.

PMI's ratings reflect the company's solid market position in the U.S. mortgage insurance industry, strong excess capital given the current rating, good credit performance of the insured portfolio, and solid financial returns over an extended period of time. The financial profile of the parent company, TPG, also derives diversity from international mortgage insurance operations and operations outside of mortgage insurance, primarily financial guaranty. Fitch's credit concerns center on significant competitive threats impacting the entire mortgage insurance industry resulting in lower returns for both TPG and the mortgage insurance industry, as a whole.

PMI, an Arizona-domiciled mortgage insurance company, is the lead operating company of TPG. With $2.9 billion of capital at Sept. 30, 2005, including $625 million of policyholders' surplus and $2.3 billion of contingency reserves, TPG's mortgage insurance subsidiaries maintain healthy excess capital on a stand-alone basis. Under Fitch's proprietary mortgage insurance capital model, PMI's level of capital easily supported the $27.7 billion of risk in force (as of Sept. 30, 2005) within the mortgage insurance operation at an 'AA+' IFS rating.

U.S. mortgage insurance operations comprised 67% of TPG's total net income in 2005. Like the majority of the U.S. mortgage insurance industry, earnings growth at TPG's mortgage insurance operations has been negatively impacted in the past few years by lessened demand for insurance as a result of the proliferation of 'mortgage insurance avoidance' products being offered in the marketplace, the majority of which are being provided by mortgage originators, PMI's primary customer base.

Reflecting the strong real estate markets in the U.S. over the past few years, losses within the mortgage guaranty insurance portfolio continue to remain below expected levels. Given the competitive environment within the mortgage insurance industry, however, PMI, like many of its competitors, has followed the market into new product offerings in less traditional sectors of the mortgage industry that carry greater risk, such as high loan-to-value mortgages, sub prime mortgages, reduced documentation mortgages and mezzanine-layered credit enhancement on residential mortgage-backed securities (RMBS). Fitch believes that PMI has developed a strong understanding of the nontraditional product segments of mortgage insurance.

Unlike the rest of the insurance industry, Fitch will not be issuing its new ratings standards, including the assigning of new Issuer Default Ratings (IDR), for TPG and the rest of the mortgage insurance and financial guaranty industries at this time (see report entitled 'Insurance Industry: Global Notching Methodology,' published Feb. 28, 2006 and available on the Fitch Ratings web site at www.fitchratings.com).

The decision to postpone the implementation of IDR ratings for TPG and its competitors is the result of a recent Model Act #555 titled "Insurer Receivership Model Act" which was published by the National Association of Insurance Commissioners. In this Model Act, policyholder obligations with respect to mortgage insurance and financial guaranty insurance may not be afforded priority, and may be specifically carved out from Class 3 'policyholder claim obligations' and instead appear to be classified as Class 6 obligations on par with 'claims of other unsecured creditors.'

Fitch is postponing the implementation of the new methodology for mortgage insurers until we are better able to understand how Model Act #555 may be adopted at the state level. This postponement will also include the non-U.S. mortgage insurance and financial guaranty subsidiaries of parent companies in the U.S. Regardless of the outcome of the Model Act; Fitch does not expect the IFS ratings of the U.S. mortgage insurers to be affected. If Fitch determines that mortgage insurance policyholders do not have priority, Fitch may tighten notching between the IFS rating and parent debt rating. Additionally, the relative IFS ratings of subsidiaries may be adjusted if there is ultimately inconsistency across jurisdictions with respect the existence of policyholder priority.

The PMI Group, Inc. (NYSE:PMI) headquartered in Walnut Creek, California is an international provider of credit enhancement products that promote homeownership and facilitate mortgage transactions in the capital markets. Through its wholly owned subsidiaries and unconsolidated strategic investments, TPG offers residential mortgage insurance and credit enhancement products domestically and internationally as well as financial guaranty insurance and reinsurance. As of Dec. 31, 2005, TPG reported consolidated total assets of $5.3 billion and total shareholders' equity of $3.2 billion.

Fitch has affirmed the following ratings with a Stable Outlook:

The PMI Group, Inc.

--$63 million 6.75% senior notes due Nov. 15, 2006 'A+';

--$345 million 3% senior notes due Nov. 15, 2008 'A+';

--$360 million 2.50% senior convertible debentures July 15, 2021 'A+';

PMI Capital Trust I

--$52 million 8.309% trust preferred securities Feb. 1, 2027 'A';

PMI Mortgage Insurance Co.

--Insurer financial strength 'AA+'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.