Fitch Downgrades PMI Mortgage Ins Co. & PMI Guaranty Co. to 'AA'; Affirms PMI Group at 'A+'

Business Wire, August 29, 2007

NEW YORK -- Fitch Ratings has downgraded the insurer financial strength (IFS) ratings of PMI Mortgage Insurance Co. (PMI) and PMI Guaranty Co. to 'AA' from 'AA '. In addition, Fitch has affirmed The PMI Group, Inc.'s (TPG) senior debt and long term issuer ratings at 'A ', the ratings of the trust preferred securities of PMI Capital I at 'A', and the IFS ratings of PMI Mortgage Insurance Company Limited (PMI Europe) and PMI Mortgage Insurance Ltd. (PMI Australia) at 'AA' (See full list below). The Rating Outlook for all ratings is Stable.

An Arizona-domiciled mortgage insurance company, PMI is the lead operating company of TPG. Along with its mortgage insurance affiliates, PMI maintained $3.5 billion of consolidated statutory capital at June 30, 2007 composed of $2.8 billion of contingency reserves and $662.4 million of policyholders' surplus to support its $31.6 billion of U.S. mortgage insurance risk in force.

The ratings of PMI incorporate its solid franchise, strong balance sheet at the 'AA' rating stress level, experienced management team, and high quality insured portfolio as measured by FICO score distribution and other risk layering characteristics. Fitch also recognizes that TPG derives benefit from diverse earnings streams from international mortgage insurance operations as well as operations outside of the mortgage insurance space, primarily financial guaranty. Concerns center on the company's exposure to the declining U.S. residential real estate market, and its potential impact on PMI and its competitors' projected intermediate-term performance.

Effective August 23, 2007, Fitch's Mortgage Insurance (MI) group incorporated several enhancements to its existing proprietary mortgage insurance capital model in light of the rapidly changing U.S. mortgage environment and corresponding changes made by Fitch's U.S. Residential Mortgage-Backed Securities group to its model. Among the most significant changes to Fitch's MI model were a 20% increase to the frequency of foreclosure factors and an increase in the capital charge for illiquid assets to 100%. (Please see the press release dated August 23, 2007 at www.fitchratings.com.)

Prior to the recent revisions to the MI capital model, Fitch believed PMI historically operated with more than sufficient capital to support an 'AA ' IFS rating. However, when factoring in the revisions mentioned above, Fitch believes PMI and its mortgage insurance affiliates maintain capital at a level that is more consistent with an 'AA' IFS rating.

There were no changes to the debt ratings of TPG due to the company's current modest financial leverage of 11.7% coupled with the significant level of cash held at the holding company. As of June 30, 2007, TPG maintained $201.5 million of cash or cash equivalents at the parent company translating to a 'net debt' to capital ratio of 6.9%. TPG's management has publicly committed to maintaining between $75 million and $100 million of cash at the holding company and based on discussions with management, Fitch anticipates that TPG's 'net debt' to capital ratio will hold in the low double-digit range for the foreseeable future.

The IFS rating of PMI Guaranty Co., a surety company wholly-owned by TPG that commenced operations in the fourth quarter of 2006, has been downgraded to 'AA' from 'AA ' exclusively based on the similar rating action on PMI. The rating of PMI Guaranty relies in large part on the soft capital support of up to $650 million provided by PMI in the form of a net worth maintenance agreement that is fully guaranteed by TPG.

Headquartered in Walnut Creek, California, TPG is an international provider of credit enhancement products that promote homeownership and facilitate mortgage transactions in the capital markets. Through its wholly owned subsidiaries and unconsolidated strategic investments, TPG offers residential mortgage insurance and credit enhancement products domestically and internationally as well as financial guaranty insurance and reinsurance. TPG has operations in Asia, Australia and New Zealand, Canada, Europe and the United States. As of June 30, 2007, TPG reported consolidated total assets of $5.7 billion and total shareholders' equity of $3.8 billion.

Fitch has affirmed the following ratings with a Stable Rating Outlook:

The PMI Group, Inc.

--$250 million 6% senior notes due Sept. 15, 2016 at 'A ';

--$150 million 6.625% senior notes due Sept. 15, 2036 at 'A ';

--$45 million 5.568% senior notes due Nov. 15, 2008 at 'A ';

PMI Capital I

--$52 million 8.309% trust preferred securities Feb. 1, 2027 at 'A';

PMI Mortgage Insurance Company Limited (PMI Europe)

--Insurer financial strength at 'AA';

PMI Mortgage Insurance Ltd. (PMI Australia)

--Insurer financial strength at 'AA'.

Fitch has downgraded the following IFS ratings:

PMI Mortgage Insurance Co.

--Insurer financial strength to 'AA' from 'AA ';

PMI Guaranty Co.

--IFS to 'AA' from 'AA '.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.