On May 20th we will find out if the GSEs object to the theft of PMI's assets by Arch, or whether they turn the deal down, opening the door to return PMI to it's rightful owners, the PMI Group Inc.
I was reading through the receivership papers and it looks like the GSEs (no doubt driven by the FHFA) are preparing to raise some objections to the Arch theft of PMI resources. If the GSEs quash the deal, there is a much better chance the PMI holding company can recover their stolen assets from Arizona. I would peg it at better than even that the Arch deal doesn't go through.
How dumb can you be? Because these are regulated insurance entities, they have to disclose any reinsurance arrangements, and from reading the statutory filings, it can be seen that GEMICO entered into a new captive reinsurance agreement with one Prospect Mortgage Insurance LLC in 2010. By last year they had ceded that company over half a million in premiums. Are they that stupid to enter into a new agreement at that late date? Radian disclosed they hadn't entered into a new agreement since 2007, before the crisis hit. I guess when you are in last place amongst the surviving MIs you are desperate.
It is pretty clear that Arizona is selling PMI's assets at fire sale prices, look at how little they are charging for PMI's good books of business. At what point does management sue to get their assets back?
No, MIC wasn't sold. But the economics of the 2009-2011 book years are being sold. Just read the first 30 pages of Petition 24. It isn't that hard to understand.
Hopefully the reason they extended the objecting period for Petition 24 is because the GSEs are indicating they will refuse to approve the theft of the 2009-2011 profits. Please write your congressional representative about this theft.
You are wrong. Look on the receivership website, Petition 24, page 22, there is a section titled "Reinsurance Agreement on 2009-2011 PMI Policies". It describes the theft:
"PMI and Arch Capital will enter into a 100% quota share reinsurance agreement for the non-delinquent 2009-2011 policies effective as of July 1, 2012."
This is a blatant ripoff of policyholders, taxpayers, and shareholders. As described by MGIC and other MIs (for example, see Genworth's presentations on their US MI subsidiary), the 2009-2011 books have at least $250M, if not more, in value from 7/1/12 forward. For that value, Arch is paying $90M.
Those profits will NOT be used to pay policyholders claims under this agreement - PMI will get $90M, nothing more, and in exchange will send the profits to Arch.
The bogus transaction the receiver is trying to pull off with Arch is stealing at least $1 per share from PMI's insureds and ultimately shareholders once the holding company gets PMI back. They are selling all the profits from the good books, 2009-2011, to Arch for $90M. But if you look at the estimates from MGIC on their recent earnings call, $20B in NIW is worth $400M in future cash flows. PMI wrote $20B in NIW from 2009-2011, so you have to figure at least $250M in future cash flows, if not more, is still embedded in those books. But the receiver is selling those books for $90M, meaning the theft per share is over $1. This is a ripoff of the insureds (who happen to be Freddie and Fannie, and therefore, you the taxpayer) and ultimately the shareholders. I urge you all to contact your Congressional representative to force the FHFA to block this theft and have the assets returned to their rightful owners. The FHFA can act because Arch wants to enter the MI space and needs Fannie and Freddie to approve them. That is fine if they do, but not at the cost of the shareholder. I have personally contacted my congressional reps (one of whom is Mr Hensarling). Please do the same.
The receiver is totally mismanaging PMI's assets in runoff. She is wrong on the reinsurance agreements, and she is wrongly allowing PMI's assets to be given away in order to preserve jobs for PMI's employees. Arizona is running the receivership like they are a corrupt, third world country.
There is value in the commons IF management of the holding company does the right thing and sues Arizona for control back of the operating companies. It is clear that Arizona is mismanaging the operating companies and is trying to give away assets in order to preserve jobs. Left intact, and managed in a proper way, the operating companies could pay all legitimate claims and eventually re-enter the market; left in the hands of Arizona, it is clear value will be given away and the operating companies will be gutted.
Looks like the GSEs are preparing to object to the bogus deal the ex-PMI execs are trying to strike with Arch to preserve their jobs. Just the other day MGIC was on their call saying for every $20B in NIW they will generate $400M in contribution. But PMI is trying to sell the profits of their 2009-2011 books of business to Arch for $90M. Guess how much NIW PMI wrote from 2009-2011? Almost exactly $20B. Now, sure, some of that profit has been realized already, but no way has 3/4 of it been realized already. By my guess, only 1/4 of it has. So PMI is trying to sell $300M of profits to Arch to encourage Arch to buy the assets so they can keep their jobs.
Given the value in those books, and given that MGIC is being allowed to run at 48:1, TPG should be suing Arizona to get the operating companies back while the operating companies are still intact. Or at a minimum they should sue to block the transaction, and get any residual value out of the operating companies once they are run off. And there could be residual value after policyholders are paid, if they were runoff correctly.
It looks to me like Arizona had a vendetta against former PMI management, and now the dimwit they put in place of running it off is willing to allow assets to be sold on the cheap so the remaining employees can keep their jobs.
That transaction is a farce, it is a giveaway of policyholder money to keep PMI employees in their jobs. I doubt it will ever close.
ORI may have avoided RMIC being seized, but that won't last for long. What do they think the end result is going to be? They can just avoid paying full claims, and at the end, when there is no money left, they just close the doors?
No, it doesn't work like that. At some point, their insolvency can no longer be papered over by a phony accounting gimmick like a deferred payment obligation, and RMIC will be seized. Again, see TGIC for a glimpse into RMIC's ultimate fate.
ORI better have their debt issues worked out before that happens.
The NOLs of this company are worthless because they don't have enough money to utilize them by buying a profitable business, and no one can buy the NOLs because a change of ownership makes them unusable. PMI might be able to use theirs, as WMI (old WaMu) is trying to do, but they have money to spend on profitable businesses. TGIC has practically no money, and what it has will be eaten up by the lawyers.
There is a good chance they file CH 7.
So far this quarter Radian's net denials are nearly flat, especially compared to the thousands per month they have been doing for the past year. But they are assuming away $500M+ in reserves based on future denials. Something doesn't compute.
Take away that $500M and their risk to capital is well above 25:1. And Radian can't afford to go above 25:1, the consequences will be dire.
Sentiment: Strong Sell
That is about where MGIC will be after Q4. How long will they continue to get forbearance from regulators and support from originators as their risk to capital climbs into the 50s?
Sentiment: Strong Sell