Exhibit 10.3

THE PMI GROUP, INC.

BONUS INCENTIVE PLAN

(September 19, 2007 Amendment and Restatement)

SECTION 1

BACKGROUND, PURPOSE AND DURATION

1.1 Effective Date. The Plan originally was effective as of February 18, 1999.
The Plan was last amended and restated in its entirety effective as of
September 20, 2006. The Plan is hereby again amended and restated in its
entirety effective as of September 19, 2007.

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 each corporation, trade or business which is, together
with the Company, a member of a controlled group of corporations or an
affiliated service group or under common control (within the meaning of
section 414(b), (c) or (m) of the Code), but only for the period during which
such other entity is so affiliated with the Company. Notwithstanding the
foregoing, in applying sections 1563(a)(1), (2) and (3) of the Code for purposes
of determining a controlled group of corporations under section 414(b) of the
Code and in applying Treasury regulation section 1.414(c)-2 for purposes of
determining trades or businesses that are under common control for purposes of
section 414(c) of the Code, the phrase “at least 50 percent” will be used
instead of “at least 80 percent” at each place it appears in such sections.

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.

 

-1-

--------------------------------------------------------------------------------

2.4 “Board” shall mean the Board of Directors of the Company, as constituted
from time to time, except that any action that could be taken by the Board of
Directors may also be taken by a duly authorized Committee of the Board of
Directors.

2.5 “Change of Control” means a change in the ownership of the Company, a change
in the effective control of the Company, or a change 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 Treasury regulation section
1.409A-3(i)(5), and as set forth below:

(a) A change in the ownership of the Company occurs on the date that any one
person or more than one person acting as a group (a “Person”), acquires
ownership of the stock of the Company that, together with the stock held by such
Person, constitutes more than fifty percent (50%) of the total fair market value
or total voting power of the stock of the Company; provided, however, that for
purposes of this subsection (a), the acquisition of additional stock by any one
Person who is considered to own more than fifty percent (50%) of the total fair
market value or total voting power of the stock of the Company shall not be
considered to cause a change in the ownership of the Company (or to cause a
change in the effective control of the Company within the meaning of subsection
(b) below). An increase in the percentage of stock owned by any one Person as a
result of a transaction in which the Company acquires its stock in exchange for
property shall be treated as an acquisition of stock for purposes of this
subsection (a). This subsection (a) applies only when there is a transfer of
stock of the Company (or issuance of stock of the Company) and the Company’s
stock remains outstanding after the transaction;

(b) A change in the effective control of the Company occurs on the date that
either: (1) any one Person acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such Person) ownership of
the stock of the Company possessing thirty percent (30%) or more of the total
voting power of the stock of the Company; or (2) a majority of the members of
the Board of Directors is replaced during any 12-month period by directors whose
appointment or election is not endorsed by a majority of the members of the
Board of Directors prior to the date of the appointment or election. A change in
effective control also may occur in a transaction in which either of the two
corporations involved in the transaction has a Change of Control under
subsection (a) above or (c) below. For purposes of this subsection (b), if any
one Person is considered to effectively control the Company within the meaning
of this subsection (b), the acquisition of additional control of the Company by
such Person shall not be considered to cause a change in the effective control
of the Company (or to cause a change in the ownership of the Company within the
meaning of subsection (a) above); or

(c) A change in the ownership of a substantial portion of the Company’s assets
occurs on the date that any one Person acquires (or has acquired during the
12-month period ending on the date of the most recent acquisition by such
Person) assets from the Company that have a total gross fair market value equal
to or more than forty percent (40%) of the total gross fair market value of all
of the assets of the Company immediately prior to such acquisition or
acquisitions. For this purpose, “gross fair market value” means the value of the
assets of the Company, or the value of the

 

-2-

--------------------------------------------------------------------------------

assets being disposed of, determined without regard to any liabilities
associated with such assets. However, there is no Change of Control under this
subsection (c) when there is a transfer of assets of the Company to an entity
that is controlled by the shareholders of the Company immediately after the
transfer, as provided below. A transfer of assets by the Company shall not be
treated as a change in the ownership of such assets if the assets are
transferred to: (1) a shareholder of the Company (immediately before the asset
transfer) in exchange for or with respect to the Company’s stock; (2) an entity,
fifty percent (50%) or more of the total value or voting power of which is
owned, directly or indirectly, by the Company; (3) a Person, that owns, directly
or indirectly, fifty percent (50%) or more of the total value or voting power of
all the outstanding stock of the Company; or (4) an entity, at least fifty
percent (50%) of the total value or voting power of which is owned, directly or
indirectly, by a Person described in clause (3) above. For purposes of this
subsection (c) and except as otherwise provided, a person’s status is determined
immediately after the transfer of the assets.

For purposes of this Section 2.5, persons will not be considered to be acting as
a group solely because they purchase or own stock of the Company at the same
time. However, persons will be considered to be acting as a group if they are
owners of a corporation that enters into a merger, consolidation, purchase or
acquisition of stock, or similar business transaction with the Company, and if a
person, including an entity, owns stock in both the Company and another
corporation and the Company and the other corporation enter into a merger,
consolidation, purchase or acquisition of stock, or similar transaction, such
shareholder is considered to be acting as a group with other shareholders only
with respect to the ownership in the Company before the transaction giving rise
to the change and not with respect to the ownership interest in the other
corporation. Section 318(a) of the Code also applies to determine stock
ownership. Stock underlying a vested option is considered owned by the
individual who holds the vested option (and the stock underlying an unvested
option is not considered owned by the individual who holds the unvested option);
provided, however, that if a vested option is exercisable for stock that is not
substantially vested (as defined by Treasury regulation sections 1.83-3(b) and
(j)), the stock underlying the option is not treated as owned by the individual
who holds the option.

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 or other Treasury Department or Internal
Revenue Service guidance 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 and any Affiliate to the extent required.

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

 

-3-

--------------------------------------------------------------------------------

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 Company. The Committee
shall determine whether or not a Participant is Disabled based on such evidence
as the Committee deems necessary or advisable. Notwithstanding the foregoing, a
Participant shall be deemed Disabled if he or she is determined to be totally
disabled by the Social Security Administration.

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 per share closing market price 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.

2.15 “Plan” means The PMI Group, Inc. Bonus Incentive Plan, as set forth in this
instrument and as heretofore or 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 Securities 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)(i) of the Code and
Treasury regulation section 1.409A-1(h), 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

 

-4-

--------------------------------------------------------------------------------

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, except that if
the period of such leave exceeds six (6) months and the Participant does not
retain a right to reemployment under an applicable statute or by contract, then
the employment relationship shall be deemed to have terminated on the first day
immediately following such six-month period. A leave of absence constitutes a
bona fide leave of absence only if there is a reasonable expectation that the
Participant will return to perform services for the Company or an Affiliate.

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.

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, 2007,
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 2007.)

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.

 

-5-

--------------------------------------------------------------------------------

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 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, but no later than the fifteenth (15th) day of the third month
immediately following the end of the Performance Period in which the 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, Change of Control, 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.

 

-6-

--------------------------------------------------------------------------------

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.

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.

 

-7-

--------------------------------------------------------------------------------

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.

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.

 

-8-

--------------------------------------------------------------------------------

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.

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
this restated Plan on the date indicated below.

 

    THE PMI GROUP, INC. Dated: September 24, 2007           By  

/s/ Charles Broom

    Name:   Charles Broom     Title:   Senior Vice President

 

-9-