EXHIBIT 10.3

THE PMI GROUP, INC.

BONUS INCENTIVE PLAN

(September 20, 2006 Amendment and Restatement)

SECTION 1

BACKGROUND, PURPOSE AND DURATION

1.1 Effective Date. The Plan originally was effective as of February 18, 1999.
This amendment and restatement is effective as of September 20, 2006, subject to
ratification by an affirmative vote of the holders of a majority of the Shares
that are present in person or by proxy and entitled to vote at the 2007 Annual
Meeting of Stockholders of the Company.

1.2 Purpose of the Plan. The Plan is intended to increase shareholder value and
the success of the Company by motivating key executives (a) to perform to the
best of their abilities, and (b) to achieve the Company’s objectives. The Plan’s
goals are to be achieved by providing such executives with incentive awards
based on the Company’s net income. The Plan is further intended to permit the
grant of awards that qualify as performance-based compensation under section
162(m) of the Code.

SECTION 2

DEFINITIONS

The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:

2.1 “Actual Award” means as to any Performance Period, the actual award (if any)
payable to a Participant for the Performance Period, subject to the Committee’s
authority under Section 3.5 to reduce the award.

2.2 “Affiliate” means any corporation or other entity (including, but not
limited to, partnerships and joint ventures) controlled by the Company (within
the meaning of section 414(b), (c) or (m) of the Code).

2.3 “Base Salary” means as to any Performance Period, the Participant’s
annualized salary rate on the last day of the Performance Period. Such Base
Salary shall be before both (a) deductions for taxes or benefits, and
(b) deferrals of compensation pursuant to Company-sponsored plans.

2.4 “Board” means the Board of Directors of the Company.

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2.5 “Change of Control” means a change in the ownership or effective control of
the Company, or in the ownership of a substantial portion of the assets of the
Company (as determined in accordance with section 409A(a)(2)(A)(v) of the Code
and the applicable regulations issued there under).

2.6 “Code” means the Internal Revenue Code of 1986, as amended. Reference to a
specific section of the Code or regulation thereunder shall include such section
or regulation, any valid regulation promulgated thereunder, and any comparable
provision of any future legislation or regulation amending, supplementing or
superseding such section or regulation.

2.7 “Committee” means the committee appointed by the Board (pursuant to
Section 5.1) to administer the Plan. Until otherwise determined by the Board,
the Company’s Compensation Committee shall constitute the Committee.

2.8 “Company” means The PMI Group, Inc., a Delaware corporation, or any
successor thereto.

2.9 “Disability” or “Disabled” means (a) the inability of a Participant to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or can be expected to last for a continuous period of not less than twelve
(12) months, or (b) the Participant is, by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can be
expected to last for a continuous period of not less than twelve (12) months,
receiving income replacement benefits for a period of not less than three
(3) months under an accident and health plan covering employees of the Employer.
Notwithstanding the foregoing, a Participant shall be deemed Disabled if he or
she is determined to be totally disabled by the Social Security Administration.
The Committee shall determine whether or not a Participant is Disabled based on
such evidence as the Committee deems necessary or advisable.

2.10 “Employee” means any employee of the Company or of an Affiliate, whether
such employee is so employed at the time the Plan is adopted or becomes so
employed subsequent to the , adoption of the Plan.

2.11 “Employee Performance Pool” means the pool of funds available for
distribution to Participants. Subject to the terms of the Plan, the Committee
establishes the Employee Performance Pool for each Performance Period.

2.12 “Fair Market Value” means the arithmetic mean of the highest and lowest per
share selling prices of the Shares, as quoted in the New York Stock Exchange
Composite Transactions Index for the date in question.

2.13 “Participant” means as to any Performance Period, an Employee who has been
selected by the Committee for participation in the Plan for that Performance
Period.

2.14 “Performance Period” means any period of not less than twelve consecutive
calendar months, as determined by the Committee in its sole discretion. No more
than three Performance Periods may be in effect at any one time.

 

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2.15 “Plan” means The PMI Group, Inc. Bonus Incentive Plan, as set forth in this
instrument and as hereafter amended from time to time.

2.16 “Retirement” means (a) a Termination of Service occurring on or after age
sixty-five, (b) a Termination of Service at or after age fifty-five with at
least ten years of Benefit Accrual Service (as defined under The PMI Group, Inc.
Retirement Plan, as amended), or (c) a Termination of Service approved by the
Company as an early retirement; provided that in the case of a person subject to
Section 16 of the Exchange Act, such early retirement must be approved by the
Committee.

2.17 “Shares” means shares of the Company’s common stock, $0.01 par value.

2.18 “Target Award” means the target award payable under the Plan to a
Participant for the Performance Period, expressed as a percentage of his or her
Base Salary, as determined by the Committee in accordance with Section 3.2.

2.19 “Termination of Service” means a cessation of the employee-employer
relationship between an Employee and the Company or an Affiliate for any reason,
(as determined in accordance with section 409A(a)(2)(A) of the Code), including,
but not by way of limitation, a termination by resignation, discharge, death,
Disability, Retirement, or the disaffiliation of an Affiliate, but excluding any
such termination where there is a simultaneous reemployment by the Company or an
Affiliate. For this purpose, the employment relationship shall be treated as
continuing intact while the Participant is on military leave, sick leave or
other bona fide leave of absence (such as temporary employment by the
government), except that if the period of such leave exceeds six (6) months and
the Participant’s right to reemployment is not provided for by statute or
contract, then the employment relationship shall be deemed to have terminated on
the first day immediately following such six-month period.

SECTION 3

SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS

3.1 Selection of Participants. The Committee, in its sole discretion, shall
select the Employees who shall be Participants for any Performance Period.
Participation in the Plan is in the sole discretion of the Committee, and on a
Performance Period by Performance Period basis. Accordingly, an Employee who is
a Participant for a given Performance Period in no way is guaranteed or assured
of being selected for participation in any subsequent Performance Period or
Periods.

3.2 Determination of Target Awards. Subject to the limitations of Section 3.4
below, the Committee, in its sole discretion, shall establish a Target Award for
each Participant. Each Participant’s Target Award shall be determined by the
Committee in its sole discretion, and each Target Award shall be set forth in
writing.

 

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3.3 Employee Performance Pool. Each Performance Period, an amount equal to no
more than 5% of the Company’s net income shall be allocated to the Employee
Performance Pool. The Committee, in its sole discretion, shall determine the
size of the Employee Performance Pool, subject to the limitation in the
preceding sentence.

3.4 Determination of Awards for Covered Employees. Each year the maximum Actual
Award payable under the Plan to a Participant shall be no more than 30% of the
amount allocated to the Employee Performance Pool. In addition, the total of all
Actual Awards payable for any Performance Period may not exceed the size of the
Employee Performance Pool.

In the event a partial Performance Period occurs during any calendar year, the
percent of pool limitation in this Section 3.4 shall be calculated based on the
pro-rata portion of the Performance Pool established for the partial Performance
Period (e.g., if a twelve-month Performance Period ends March 31, 2006,
one-fourth of the Performance Pool for that Performance Period will be used to
calculate the percent of pool limitation in this Section 3.4 for 2006.)

3.5 Discretion to Reduce Awards. Notwithstanding any contrary provision of the
Plan, the Committee may, in its sole discretion and at any time, reduce or
eliminate (a) a Participant’s Actual Award, and/or (b) the amount allocated to
the Employee Performance Pool. The Committee may determine the amount of any
reduction on the basis of such factors as it deems relevant, and shall not be
require to establish any allocation or weighting with respect to the factors it
considers.

3.6 Discretion to Include Additional Criteria. Notwithstanding any contrary
provision of the Plan, the Committee may, in its sole discretion, place
additional vesting or performance requirements upon any Target Award. The
additional requirements may be on the basis of any factors the Committee
determines relevant, and may be on an individual, divisional, business unit or
Company-wide basis. Failure to meet the additional requirements will result in a
failure to earn the Target Award.

3.7 Special Rule for Change of Control. Notwithstanding any contrary provision
of the Plan, the then ongoing Performance Period shall be deemed terminated
immediately prior to the occurrence of a Change of Control and 100% of Target
Awards shall be deemed to be earned and shall be immediately payable to the
Participants.

SECTION 4

PAYMENT OF AWARDS

4.1 Right to Receive Payment. Each Actual Award shall be paid solely from the
general assets of the Company. Nothing in this Plan shall be construed to create
a trust or to establish or evidence any Participant’s claim of any right other
than an unsecured general creditor with respect to any payment to which he or
she may be entitled.

4.2 Timing of Payment. Payment of each Actual Award shall be made as soon as
practicable, no more than sixty days from the end of the Performance Period, and
in no event will the payment occur later than two and half months from the end
of the Participant’s (or the Company’s)

 

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first taxable year after the end of the Performance Period during which the
Actual Award was earned. Unless otherwise determined by the Committee, and
except as provided in Section 4.4 (relating to death and Disability), a
Participant must be employed by the Company or any Affiliate on the date of
payment to receive a payment under the Plan.

4.3 Form of Payment. Each Actual Award normally shall be paid in cash (or its
equivalent) in a single lump sum. However, the Committee, in its sole
discretion, may declare any Actual Award, in whole or in part, payable in
restricted stock granted under the Company’s Equity Incentive Plan. The number
of Shares of restricted stock granted shall be determined by dividing the cash
amount foregone by the Fair Market Value of a Share on the date that the cash
payment otherwise would have been made. Any such restricted stock shall be
subject to the vesting schedule (not to exceed two calendar years) as may be
determined by the Committee, provided that accelerated vesting automatically
shall occur upon death, Disability, Retirement or involuntary Termination of
Service without cause.

4.4 Payment in the Event of Death or Disability. If a Participant dies or
becomes Disabled prior to the payment of an Actual Award earned by him or her
prior to death or Disability for a prior Performance Period, the Actual Award
shall be paid to his or her estate or to the Participant, as the case may be,
subject to the Committee’s discretion to reduce or eliminate any Actual Award
otherwise payable.

SECTION 5

ADMINISTRATION

5.1 Committee is the Administrator. The Plan shall be administered by the
Committee. The Committee shall consist of not less than two members of the
Board. The members of the Committee shall be appointed from time to time by, and
serve at the pleasure of, the Board. Each member of the Committee shall qualify
as an “outside director” under section 162(m) of the Code. If it is later
determined that one or more members of the Committee do not so qualify, actions
taken by the Committee prior to such determination shall be valid despite such
failure to qualify.

5.2 Committee Authority. It shall be the duty of the Committee to administer the
Plan in accordance with the Plan’s provisions. The Committee shall have all
powers and discretion necessary or appropriate to administer the Plan and to
control its operation, including, but not limited to, the power to (a) determine
which Employees shall be granted awards, (b) prescribe the terms and conditions
of awards, (c) interpret the Plan and the awards, (d) adopt such procedures and
subplans as are necessary or appropriate to permit participation in the Plan by
Employees who are foreign nationals or employed outside of the United States,
(e) adopt rules for the administration, interpretation and application of the
Plan as are consistent therewith, and (f) interpret, amend or revoke any such
rules.

5.3 Decisions Binding. All determinations and decisions made by the Committee,
the Board, and any delegate of the Committee pursuant to the provisions of the
Plan shall be final, conclusive, and binding on all persons, and shall be given
the maximum deference permitted by law.

 

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5.4 Delegation by the Committee. The Committee, in its sole discretion and on
such terms and conditions as it may provide, may delegate all or part of its
authority and powers under the Plan to one or more directors and/or officers of
the Company; provided, however, that the Committee may delegate its authority
and powers only with respect to awards that are not intended to qualify as
performance-based compensation under section 162(m) of the Code.

SECTION 6

GENERAL PROVISIONS

6.1 Tax Withholding. The Company shall withhold all applicable taxes from any
Actual Award, including any federal, state and local taxes (including, but not
limited to, the Participant’s FICA and SDI obligations).

6.2 No Effect on Employment or Service. Nothing in the Plan shall interfere with
or limit in any way the right of the Company to terminate any Participant’s
employment or service at any time, with or without cause. For purposes of the
Plan, transfer of employment of a Participant between the Company and any one of
its Affiliates (or between Affiliates) shall not be deemed a Termination of
Service. Employment with the Company and its Affiliates is on an at-will basis
only. The Company expressly reserves the right, which may be exercised at any
time and without regard to when during a Performance Period such exercise
occurs, to terminate any individual’s employment with or without cause, and to
treat him or her without regard to the effect which such treatment might have
upon him or her as a Participant.

6.3 Participation. No Employee shall have the right to be selected to receive an
award under this Plan, or, having been so selected, to be selected to receive a
future award.

6.4 Indemnification. Each person who is or shall have been a member of the
Committee, or of the Board, shall be indemnified and held harmless by the
Company against and from (a) any loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by him or her in connection with or
resulting from any claim, action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action taken or
failure to act under the Plan or any award, and (b) from any and all amounts
paid by him or her in settlement thereof, with the Company’s approval, or paid
by him or her in satisfaction of any judgment in any such claim, action, suit,
or proceeding against him or her, provided he or she shall give the Company an
opportunity, at its own expense, to handle and defend the same before he or she
undertakes to handle and defend it on his or her own behalf. The foregoing right
of indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company’s Certificate of
Incorporation or Bylaws, by contract, as a matter of law, or otherwise, or under
any power that the Company may have to indemnify them or hold them harmless.

6.5 Successors. All obligations of the Company under the Plan, with respect to
awards granted hereunder, shall be binding on any successor to the Company,
whether the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business or assets of the Company.

 

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6.6 Beneficiary Designations. If permitted by the Committee, a Participant under
the Plan may name a beneficiary or beneficiaries to whom any vested but unpaid
award shall be paid in the event of the Participant’s death. Each such
designation shall revoke all prior designations by the Participant and shall be
effective only if given in a form and manner acceptable to the Committee. In the
absence of any such designation, any vested benefits remaining unpaid at the
Participant’s death shall be paid to the Participant’s estate.

6.7 Nontransferability of Awards. No award granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will, by the laws of descent and distribution, or to the limited extent
provided in Section 6.6. All rights with respect to an award granted to a
Participant shall be available during his or her lifetime only to the
Participant.

SECTION 7

AMENDMENT, TERMINATION AND DURATION

7.1 Amendment, Suspension or Termination. The Board, in its sole discretion, may
amend or terminate the Plan, or any part thereof, at any time and for any
reason. The amendment, suspension or termination of the Plan shall not, without
the consent of the Participant, alter or impair any rights or obligations under
any Target Award theretofore granted to such Participant. No award may be
granted during any period of suspension or after termination of the Plan.

7.2 Duration of the Plan. The Plan shall commence on the date specified herein,
and subject to Section 7.1 (regarding the Board’s right to amend or terminate
the Plan), shall remain in effect thereafter.

SECTION 8

LEGAL CONSTRUCTION

8.1 Gender and Number. Except where otherwise indicated by the context, any
masculine term used herein also, shall include the feminine; the plural shall
include the singular and the singular shall include the plural.

8.2 Severability. In the event any provision of the Plan shall be held illegal
or invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.

8.3 Requirements of Law. The granting of awards under the Plan shall be subject
to all applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required,
including if applicable, the provisions of section 409A of the Code.
Notwithstanding any contrary Plan provision, the Plan shall be construed,
administered and enforced in a manner that is consistent with such intent, and
any provision that would cause the Plan to fail to satisfy section 409A of the
Code shall have no force and effect until

 

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amended to comply with section 409A of the Code (which amendment may be
retroactive to the extent permitted by section 409A of the Code and may be made
without the consent of any Participant or beneficiary).

8.4 Governing Law. The Plan and all awards shall be construed in accordance with
and governed by the laws of the State of California, but without regard to its
conflict of law provisions.

8.5 Captions. Captions are provided herein for convenience only, and shall not
serve as a basis for interpretation or construction of the Plan.

EXECUTION

IN WITNESS WHEREOF, the Company, by its duly authorized officer, has executed
The PMI Group, Inc. Bonus Incentive Plan on the date indicated below.

 

    THE PMI GROUP, INC. Dated:   ___________________     By            Name:  
         Title:     

 

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