WALNUT CREEK, Calif._PMI Group Inc. on Friday reported a narrower second-quarter loss, but investors sent the stock tumbling as the worse-than-expected results showed its mortgage insurance business continues to suffer.

PMI shares fell 71 cents, or 20 percent, to $2.81 in midday trading.

Mortgage insurers have been facing mounting losses since the middle of 2007 as mortgage defaults have skyrocketed, leading to a spike in claims. As more mortgages default, insurers are forced to pay out claims to cover interest and principal payments to cover those losses.

As defaults and subsequent claims have increased, however, new business has declined as mortgage lenders have severely restricted the ability of customers to get new loans. That has led to a slowdown in insurers' ability to generate new premiums.


The Walnut Creek, Calif.-based company lost $222.6 million, or $2.71 per share, in the three months ended in June. That compares with a loss of $246.3 million, or $3.03 per share, a year earlier.

Revenue fell 22 percent to $202.2 million from $259.6 million.

Analysts polled by Thomson Reuters had expected a much smaller loss of $1.42 per share on higher revenue of $235 million.

PMI said its quarterly loss was mainly driven by continued high losses in its U.S. mortgage insurance operations, as well as a $25.4 million charge related to certain debt holdings. Loss reserves totaled $3.2 billion at June 30, up from $2.9 billion at March 30 and $2.2 billion a year earlier. The company cited higher default inventories and higher average claim rates and claim sizes in its U.S. mortgage insurance operations' modified pool insurance portfolio.

Net premiums written slid to $169.7 million from $202.2 million, due to fewer new policies being written and higher refunded premiums.