DBRS Rates PMI Mortgage Insurance Co. and PMI Canada Financial Strength at AA

DBRS has today assigned a Financial Strength rating of AA with a Stable trend to PMI Mortgage Insurance Co. (the Company) and its Canadian operating subsidiary, PMI Mortgage Insurance Company Canada (PMI Canada). The rating on PMI Canada is largely based on the liquidity and capital support agreement between PMI Canada and the Company, which allows the Canadian subsidiary to be rated at the same level as the Company, which is itself an operating company.

The Company has a strong risk management infrastructure, including its underwriting processes and controls, risk assessment models and pricing models, complemented by an extensive mortgage and housing database and a highly experienced management team.

While PMI Mortgage Insurance Co. is a financially strong company with a good history of profitability, the true test of creditworthiness requires the assessment of capital adequacy under the most extreme adverse market or economic conditions. DBRS has correspondingly analyzed the Company’s policy liabilities and found that there are sufficient capital and financial resources in a run-off scenario to support an AA rating using the DBRS residential mortgage securitization model.

The Company has originated high volumes of mortgage insurance (MI) through strong housing markets over the past several years as low interest rates have improved housing affordability – despite rising prices – and existing homeowners have monetized the increasing value of their home equity. DBRS expects that, following several excellent years, the Company’s financial results could be negatively affected in the short run, as these newer loans season and related claims and losses increase, especially if the economic environment becomes more adverse. However, exposure to the sub-prime loan market (FICO scores less than 575) is not significant at just 2.1 % of Company risk-in-force.

The mature U.S. market for MI underlies the decision of The PMI Group, Inc. (the parent of PMI Mortgage Insurance Co.) to seek new growth opportunities and to increase diversification by expansion into international MI and Financial Guaranty insurance, including the recent decision to enter the Canadian MI market, where the regulatory environment has evolved to permit additional private Mortgage Insurance competitors.