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Fitch Assigns 'AA+' IFS Rating to PMI Guaranty Co.

NEW YORK -- Fitch has assigned an 'AA+' insurer financial strength (IFS) rating to PMI Guaranty Co. (PMI Guaranty), a startup surety company wholly owned by The PMI Group, Inc. (TPG) (see full list of ratings below). PMI Guaranty plans to insure residential mortgage backed securities (RMBS), enabling TPG to broaden its array of RMBS credit enhancement products. TPG is a California-based holding company whose primary operating company is PMI Mortgage Insurance Co. (PMI). The PMI Guaranty rating reflects PMI Guaranty's strategic importance to TPG and its synergy with PMI, the hard and soft capital support of TPG and PMI, and PMI's expertise in assessing residential mortgage risk. The Rating Outlook for all entities is Stable.

TPG views the creation of PMI Guaranty as an important step in reaching its goal of becoming a leading global provider of credit enhancement, enabling it to broaden its product offerings into extensions of existing business lines such as net interest margin securities (NIMs) and second lien mortgages, both of which are excluded from the monoline mortgage insurance charter of PMI. PMI Guaranty will commence operations with $200 million of hard capital: $150 million invested directly by TPG and an additional $50 million in the form of a surplus note from PMI Guaranty to TPG. In addition to the hard capital invested by TPG, PMI will provide soft capital support of up to $650 million in the form of a net worth maintenance agreement that is fully guaranteed by TPG. PMI Guaranty has a small but experienced underwriting staff and management team, and will also have access to the transaction structuring and mortgage analysis technology of PMI. Fitch believes that this breadth of resources provides PMI Guaranty with the analytical expertise to prudently evaluate the risks in the RMBS transactions it will underwrite.

PMI Guaranty expects that a small percentage of the transactions it underwrites will be to mezzanine layered tranches of RMBS and NIMs, and expects a limited portion of its mezzanine transactions to be rated below investment grade. Fitch believes that insured mezzanine transactions could ultimately demonstrate greater loss severity than transactions insured to the top of the capital structure given their subordinated position, with both risks and capital requirements rising significantly for subordinated transactions in lower rating categories. Although its portfolio will be heavily concentrated in the RMBS sector, PMI Guaranty will seek to achieve diversification through geographic dispersion, vintage dispersion, adherence to prudent single-risk and seller-servicer limits, and by assuming public finance exposure from highly rated financial guarantors. Fitch believes that PMI Guaranty has adequate capital resources to support its 'AA+' rating level, due largely to capital support provided by PMI and TPG. PMI Guaranty's business plan calls for no dividends to be paid in the first five years of operations.

PMI Guaranty is a wholly owned subsidiary of TPG, a holding company that also owns PMI, the second largest U.S. mortgage insurer in terms of risk in force and capital. As of June 30, 2006, PMI and its consolidated subsidiaries maintained a combined $26.4 billion of net risk in force and total statutory capital of $3.4 billion. TPG reported consolidated GAAP assets of $5.3 billion and shareholders equity of approximately $3.3 billion at June 30, 2006.

Fitch assigns the following with a Stable Outlook:

PMI Guaranty Co.

--IFS 'AA+'.

Fitch affirms the following with a Stable Outlook:

The PMI Group, Inc.

--Long term issuer rating 'A+';

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

--$45 million 5.568% senior notes due Nov. 15, 2008 'A+';

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

--$250 million 6.00% senior notes due Sept. 15, 2016 'A+';

--$150 million 6.625% senior notes due Sept. 15, 2036 '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, 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.
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Publication:Business Wire
Date:Oct 23, 2006
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