NU Online News Service, Aug. 23, 3:00 p.m.EDT

Rating agencies downgraded PMI Mortgage Insurance Co. (MIC),part of the PMI Group, after the company announced that the Arizonainsurance department placed it under regulatory supervision.

Moody's Investors Service lowered MIC's insurancefinancial-strength rating to Caa1 from B3, and Standard &Poor's lowered the company's financial-strength rating fromCCC-minus to R, its lowest rating, showing that regulatory actionhas been taken.

PMI Group recently disclosed that the Arizona department placed MIC andPMI Insurance Co. (PIC) under supervision and ordered the companiesto cease issuing new mortgage-insurance commitments.

PMI Group had earlier reported a 2011 second-quarter net loss of$134.8 million and said MIC's policyholders' position was $320.3million below the minimum required by Arizona law.

Moody's says MIC's statutory capital position has deterioratedsignificantly in the last few quarters as a result of highloss-reserve charges. “The risk to capital metric for [MIC] on astandalone basis reached 58:1, significantly in excess of the 25:1regulatory requirement to write new business in some states,”Moody's adds.

Moody's says by its current base case estimate, MIC's capitalresources, including future premium revenues, are “marginally lowerthan estimated portfolio losses,” and adds that the company's “neweffective runoff status” cuts off the flow of high-quality newbusiness.

S&P notes that if MIC does not provide a satisfactory planto cure its financial deficiencies within 60 days, the Arizonadepartment may commence conservatorship proceedings or take otherappropriate action.

For PMI Group, Moody's says its near-term scheduled debt serviceand repayments appear manageable through 2015, but beyond that, thecompany may be “severely constrained given limited remainingresources” and the lack of dividend flows and surplus notesinterest from operating companies. Moody's also suggests thattroubles at MIC could trigger a default of PMI Group.

S&P credit analyst Miles Kaschalk in a statement says: “Weplaced our ratings on [MIC's] holding company, the PMI Group, onCreditWatch with negative implications because the occurrence of acourt-appointed receivership could at the bondholder's optionresult in approximately $735 million of the outstandingindebtedness becoming due or payable.” He adds that the holdingcompany would not have sufficient resources to meet its obligationsin that event.