S&P downgrades PMI Mortgage Insurance on shutdown risk

After suffering a stock decline of more than 50% Thursday, The PMI Group (PMI) absorbed another blow when Standard & Poor’s lowered ratings on the company and its subsidiary PMI Mortgage Insurance Co. PMI warned Thursday that it may stop writing insurance policies in several states because heavy losses left it with inadequate capital and an excessive risk-to-capital ratio. It suffered the steepest decline among mortgage insurers Thursday when the Dow dove more than 500 points, its biggest drop since December 2008. The company’s mortgage insurance subsidiary holds just $257.8 million in statutory capital, $320.3 million below the minimum set by Arizona law, which regulates the company. And its risk-to-capital ratio is 58.1-to-1, well above the regulatory maximum of 25-to-1. While the firm reported Thursday that it narrowed its second-quarter loss, that isn’t enough to appease investors or ratings agencies. S&P cut the parent company’s counterparty credit and financial strength ratings to double C from a triple-C negative rating, while lowering the subsidiary to triple-C negative from B negative. “We believe statutory insolvency is possible by the end of 2011 or in early 2012,” said S&P credit analyst Miles Kaschalk. “Further, we believe PMI could be placed into regulatory supervision or court-ordered receivership by the Arizona Department of Insurance at or before the occurrence of statutory insolvency.” PMI’s rating outlook is negative, S&P said. Write to Liz Enochs.