The PMI Group, Inc. at Lehman Brothers 5th Annual Financial Services Conference - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

UNIDENTIFIED PARTICIPANT: As the sole representative of the mortgage insurance industry at our conference, it looks like you have a good interest here, Steve, so I'm happy to have the PMI Group presenting. Steve Smith is the Chairman and CEO, and Don Lofe is the EVP and CFO, and Bill Horning, represents Investor Relations. So I'd love to hear your comments, and, as I said, lots of interest in the sector.

STEPHEN SMITH, CHAIRMAN AND CEO, PMI GROUP: Welcome, everyone. I think I've already presented to half this audience already one-on-one, and so I'm hoping that I'll say exactly the same thing in this presentation as I did on all of the other one-on-ones.

Before we begin, thank you for you attendance, thank you for your interest in our company and the mortgage insurance business and also our other strategic investments. But before we begin, if everyone can please pay attention to the booklets and the company's Safe Harbor. We may be making forward-looking statements, as we have our presentation today.

I think you all know most of our story. We've been in business for over 35 years. We offer mortgage insurance, financial guaranty business, guarantees, credit default swaps around the world. Our mission is to expand home ownership and strengthen communities by delivering innovative solutions in the form of financial products worldwide to do three things -- reduce risk, lower costs, and expand market access for our customers and, again, we do that in the form of credit enhancements, in the form of mortgage insurance, in the form of financial guaranty, in the form of credit default swaps, and reinsurance for portfolios of mortgages, for mortgage-backed securities, for municipal finance obligations and also public finance obligations.

So, if you think about 2007 for the PMI family of companies, and you think about all the changes in the marketplace, what are we optimistic about? I'll catch you a little bit later in terms of credit recycle, but what are we optimistic about in terms of business prospects? Bottom line, PMI has a robust, full spectrum of opportunities that we can work with our customers from a lot of different dimensions. From geographic, from mortgage credit risk protection, asset class expansion, as well as loss layer expansion as well as execution structures.

Fundamentally, we believe we have the right family of companies with the right ratings with the right leverage to meet the balance sheet needs, income statement needs of our customers as they look at expanding their market access for their customers, they look at capital arbitrage, they look at real risk positioning in the marketplace.

And we feel very good about our ability in the MI business to offer first loss protection, in the PMI guaranty business to offer mezzanine loss protection, and the financial guaranty space to offer remote loss protection for our customers.

If you look at our overall global footprint, you will see that we have over $350 billion of insurance in force worldwide in the mortgage insurance business. About 130 billion of that is in the United States, about 48 billion in Europe, about 173 billion in a combination of Australia and New Zealand, Asia, and we're expanding into Canada. So we've very proud of what we've done in terms of our overall domestic as well as our international expansion.

But we're also international from a financial guaranty standpoint as well. FGIC has offices in London, opening offices in Sydney, and they have a franchise that's growing not only domestically but internationally.

As you know, we are the strategic investors in two triple-A rated financial guaranty companies, a 42% ownership in FGIC, a 24% ownership in RAMRe, and also we capitalize PMI guaranty company in the fourth quarter of last year, and they're off to a good start for 2007.

So fundamentally we believe we have a unique franchise that can work with our global customers as, again, they manage their balance sheets and their income statements, really, on a worldwide basis.

The next slide shows some of the segment net income for the mortgage insurance business for international as well as financial guaranty. We think we have complementary business segments that provide overall growth and balance for PMI Group. The blue bar represents the U.S. mortgage insurance company. It shows net income that grew to $290.3 million in 2006, and $110 million in net income in the first half of 2007.

The PMI Company does more than generate net income, net operating income and profits for the company, but also it generates a lot of capital and dividend capability to the holding company, and we'll show this in a slide a little bit later in terms of the level of dividends that have come out of the PMI Group, or the PMI Mortgage Insurance Company, default and stock repurchases dividends as well as strategic investment.

So fundamentally we've got income generator, and we're very happy with the overall capability and our market leadership position.

If you look at net income from the international sector, we had about $103.5 million worth of net income from the sector in 2006. The first half of the year was about $51 million worth of net income, and that is from business primarily, again, in Australia, New Zealand, Asia, Canada, which we'll talk a little bit more about, and also Europe.

So we're very excited, and I'll talk about some reasons in a few minutes of why we're excited about our international expansion. So we're basically expanding and building new markets in the international sector.

In the…