<PAGE>

                              THE PMI GROUP, INC.

                     DIRECTORS' DEFERRED COMPENSATION PLAN


                  (Amended and Restated as of July 21, 1999)
<PAGE>

                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>                                                                                  <C>
SECTION 1 DEFINITIONS.............................................................    1
    1.1   "Affiliate".............................................................    1
    1.2   "Beneficiary"...........................................................    1
    1.3   "Board of Directors"....................................................    1
    1.4   "Change of Control".....................................................    1
    1.5   "Code"..................................................................    3
    1.6   "Committee".............................................................    3
    1.7   "Company"...............................................................    3
    1.8   "Compensation"..........................................................    4
    1.9   "Compensation Deferrals"................................................    4
    1.10  "Disability" or "Disabled"..............................................    4
    1.11  "Financial Hardship"....................................................    4
    1.12  "Participant"...........................................................    4
    1.13  "Participant's Account" or "Account"....................................    4
    1.14  "Plan"..................................................................    4
    1.15  "Plan Year".............................................................    4
    1.16  "Nonemployee Director"..................................................    4

SECTION 2 PARTICIPATION...........................................................    5

    2.1   Participation...........................................................    5
    2.2   Suspension of Compensation Deferrals....................................    5
    2.3   Termination of Participation............................................    6

SECTION 3 COMPENSATION DEFERRAL ELECTIONS.........................................    6

    3.1   Compensation Deferrals..................................................    6
    3.2   Crediting of Compensation Deferrals.....................................    6
    3.3   Deemed Investment Return on Accounts....................................    6
    3.4   Form of Payment.........................................................    7
    3.5   Term of Deferral........................................................    7
    3.6   Changes in Elections as to Term and Form for Payment....................    7

SECTION 4 ACCOUNTING..............................................................    7

    4.1   Participants' Accounts..................................................    7
    4.2   Participants Remain Unsecured Creditors.................................    8
    4.3   Accounting Methods......................................................    8
    4.4   Reports.................................................................    8
</TABLE>

                                      -i-
<PAGE>

                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>                                                                                  <C>
SECTION 5 DISTRIBUTIONS...........................................................    8

    5.1   Normal Time for Distribution............................................    8
    5.2   Change of Control.......................................................    8
    5.3   Special Rule for Death or Disability....................................    8
    5.4   Special Rule re Deductibility...........................................    9
    5.5   Latest Permissible Distribution Date....................................    9
    5.6   Beneficiary Designations................................................    9
    5.7   Financial Hardship......................................................   10
    5.8   Payments to Incompetents................................................   10
    5.9   Undistributable Accounts................................................   10
    5.10  Committee Discretion....................................................   10

SECTION 6 PARTICIPANT'S INTEREST IN ACCOUNT.......................................   11

    6.1   Compensation Deferral Contributions.....................................   11

SECTION 7 ADMINISTRATION OF THE PLAN..............................................   11

    7.1   Committee...............................................................   11
    7.2   Actions by Committee....................................................   11
    7.3   Powers of Committee.....................................................   11
    7.4   Decisions of Committee..................................................   12
    7.5   Administrative Expenses.................................................   12
    7.6   Eligibility to Participate..............................................   12
    7.7   Indemnification.........................................................   12

SECTION 8 FUNDING.................................................................   13

    8.1   Unfunded Plan...........................................................   13

SECTION 9 MODIFICATION OR TERMINATION OF PLAN.....................................   13

    9.1   Company's Obligation is Limited.........................................   13
    9.2   Right to Amend or Terminate.............................................   13
    9.3   Effect of Termination...................................................   13

SECTION 10 GENERAL PROVISIONS.....................................................   13

    10.1  Inalienability..........................................................   13
    10.2  Rights and Duties.......................................................   14
    10.3  No Enlargement of Rights................................................   14
</TABLE>

                                      -ii-
<PAGE>

                               TABLE OF CONTENTS
                                  (continued)

<TABLE>
<CAPTION>
                                                                                     Page
                                                                                     ----
<S>                                                                                  <C>
    10.4  Compliance with Rule 16b-3..............................................   14
    10.5  Compensation Deferrals Not Counted Under Other Employee Benefit Plans...   14
    10.6  Applicable Law..........................................................   14
    10.7  Severability............................................................   14
    10.8  Captions................................................................   14
</TABLE>

                                     -iii-
<PAGE>

                              THE PMI GROUP, INC.
                     DIRECTORS' DEFERRED COMPENSATION PLAN

                  (Amended and Restated as of July 21, 1999)

  THE PMI GROUP, INC., a Delaware corporation, having established The PMI Group,
Inc. Directors' Deferred Compensation Plan, hereby amends and restates the Plan
effective as of July 23, 1998, for the benefit of members of the Board of
Directors who are employees of neither the Company nor its Affiliates, in order
to provide such directors with certain deferred compensation benefits. The Plan
is an unfunded deferred compensation plan which is exempt from the provisions of
the Employee Retirement Income Security Act of 1974, as amended.

                                   SECTION 1
                                  DEFINITIONS

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

  1.1  "Affiliate" shall mean (a) the Company, and (b) 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.

  1.2  "Beneficiary" shall mean the person or persons entitled to receive the
balance credited to a Participant's Account under the Plan upon the death of a
Participant, as provided in Section 5.4.

  1.3  "Board of Directors" shall mean the Board of Directors of the Company, as
constituted from time to time.

  1.4  "Change of Control" means the occurrence of any of the following:

       (a) The acquisition by any individual, entity or group (within the
       meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
       1934, as amended (the "Exchange Act")) (a "Person") of beneficial
       ownership (within the meaning of Rule 13d-3 promulgated under the
       Exchange Act) of 20% or more of either (i) the then outstanding shares of
       common stock of the Company (the "Outstanding Company Common Stock") or
       (ii) the combined voting power of the then outstanding voting securities
       of the Company entitled to vote generally in the election of directors
       (the "Outstanding Company Voting Securities"); provided, however, that
       for purposes of this subsection (a), the following shall not constitute a
       Change of Control: (i) any acquisition directly from the Company, (ii)
       any acquisition by the Company, (iii) any acquisition by any employee
       benefit plan

                                       1
<PAGE>

       (or related trust) sponsored or maintained by the Company or any
       corporation controlled by the Company, (iv) any beneficial ownership
       maintained by (but not additional acquisitions by), The Allstate
       Corporation and its subsidiaries, and their respective successors
       ("Allstate"), pending such time that Allstate distributes or transfers
       its current ownership interest in the Outstanding Company Common Stock
       and Outstanding Company Voting Securities as contemplated by the
       Prospectus dated April 10, 1995, relating to the initial public offering
       of the common stock of the Company, or (v) any acquisition pursuant to a
       transaction which complies with clauses (i), (ii) and (iii) of subsection
       (c) of this Section 1.4. Notwithstanding the foregoing, in its sole
       discretion, the Board may increase the 20% threshold set forth above in
       this subsection (a) prior to any acquisition of 20% or more beneficial
       ownership of the Outstanding Company Common Stock or the Outstanding
       Company Voting Securities; provided, that (i) such increased threshold
       shall apply only to the acquisition and maintenance of beneficial
       ownership by any Person eligible to report such beneficial ownership at
       the time of such acquisition on Schedule 13G under the Exchange Act, and
       (ii) in the event that any Person initially eligible to so report on
       Schedule 13G thereafter ceases to be eligible to so report on Schedule
       13G, the occurrence of the event causing such Person no longer to be
       eligible to so report shall be deemed an acquisition by such Person of
       all of the Outstanding Company Common Stock and Outstanding Company
       Voting Securities beneficially owned by such Person immediately prior to
       such occurrence; or

       (b) Individuals who, as of the date hereof, constitute the Board (the
       "Incumbent Board") cease for any reason to constitute at least a majority
       of the Board; provided, however, that any individual becoming a director
       subsequent to the date hereof whose election, or nomination for election
       by the Company's shareholders, was approved by a vote of at least a
       majority of the directors then comprising the Incumbent Board shall be
       considered as though such individual were a member of the Incumbent
       Board, but excluding, for this purpose, any such individual whose initial
       assumption of office occurs as a result of an actual or threatened
       election contest with respect to the election or removal of directors or
       other actual or threatened solicitation of proxies or consents by or on
       behalf of a Person other than the Board; or

       (c) Consummation by the Company of a reorganization, merger or
       consolidation or sale or other disposition of all or substantially all of
       the assets of the Company or the acquisition of assets of another entity
       (a "Business Combination"), in each case, unless, following such Business
       Combination, (i) all or substantially all of the individuals and entities
       who were the beneficial owners, respectively, of the Outstanding Company
       Common Stock and Outstanding Company Voting Securities immediately prior
       to such Business Combination beneficially own, directly or indirectly,
       more than 60% of, respectively, the then outstanding shares of common
       stock and the combined voting power of the then outstanding voting
       securities entitled to vote generally in the election of directors,

                                       2
<PAGE>

       as the case may be, of the corporation resulting from such Business
       Combination (including, without limitation, a corporation which as a
       result of such transaction owns the Company or all or substantially all
       of the Company's assets either directly or through one or more
       subsidiaries) in substantially the same proportions as their ownership,
       immediately prior to such Business Combination of the Outstanding Company
       Common Stock and Outstanding Company Voting Securities, as the case may
       be, (ii) no Person (excluding any employee benefit plan (or related
       trust) of the Company or such corporation resulting from such Business
       Combination) beneficially owns, directly or indirectly, 20% or more of,
       respectively, the then outstanding shares of common stock of the
       corporation resulting from such Business Combination or the combined
       voting power of the then outstanding voting securities of such
       corporation except to the extent that such ownership existed prior to the
       Business Combination and (iii) at least a majority of the members of the
       board of directors of the corporation resulting from such Business
       Combination were members of the Incumbent Board at the time of the
       execution of the initial agreement, or of the action of the Board,
       providing for such Business Combination; or

       (d) Approval by the shareholders of the Company of a complete liquidation
       or dissolution of the Company.

Notwithstanding the foregoing, a Change of Control shall not be deemed to occur
solely because any Person acquires beneficial ownership of 20% or more of the
Outstanding Company Voting Securities or Outstanding Company Common Stock as a
result of the acquisition of such securities or stock by the Company, which
acquisition reduces the number of the Outstanding Company Voting Securities or
Outstanding Company Common Stock; provided, that if after such acquisition by
the Company such Person (while such Person remains the beneficial owner of 20%
or more of the Outstanding Company Voting Securities or Outstanding Company
Common Stock) becomes the beneficial owner of additional shares of such
Outstanding Company Voting Securities or Outstanding Company Common Stock (as
the case may be), a Change of Control shall then occur. Capitalized terms used
in this Section 1.4, not otherwise defined, shall have the meaning set forth in
the form of change of control employment agreement approved at the February 12,
1998 meeting of the Board of Directors.

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

  1.6  "Committee" shall mean the committee appointed by (and serving at the
pleasure of) the Board of Directors to administer the Plan. As of the effective
date of the Plan, the members of the Committee shall be the Compensation
Committee of the Board of Directors.

  1.7  "Company" shall mean The PMI Group, Inc., a Delaware corporation.

                                       3
<PAGE>

  1.8  "Compensation" shall mean the annual cash retainer, retainer for serving
as a committee chairperson (if any), and meeting fees (if any) of a Participant.
A Participant's Compensation shall not include any other type of remuneration.

  1.9  "Compensation Deferrals" shall mean the amounts credited to Participants'
Accounts under the Plan pursuant to their deferral elections made in accordance
with Section 2.1.

  1.10 "Disability" or "Disabled" shall mean the mental or physical inability of
a Participant to perform the regularly assigned duties of a member of the Board
of Directors, provided that such inability (a) has continued or is expected to
continue for a period of at least six months and (b) is evidenced by the
certificate of a physician satisfactory to the Committee stating that such
inability exists and is likely to be permanent.

  1.11 "Financial Hardship" shall mean a severe financial emergency which is
caused by a sudden and unexpected accident, illness or other event beyond the
control of the Participant which, absent a suspension of deferrals under Section
2.2 or accelerated distribution under Section 5.5, would result in severe
financial burden to the Participant or a member of his or her immediate family.
A Financial Hardship does not exist to the extent that the hardship may be
relieved by (a) reimbursement or compensation by insurance, (b) by liquidation
of the Participant's other assets (to the extent such liquidation would not
itself cause severe financial hardship), or (c) any loan available to the
Participant (to the extent the payments on such loan would not themselves cause
severe financial hardship.

  1.12 "Participant" shall mean a Nonemployee Director who (a) has become a
Participant in the Plan pursuant to Section 2.1 and (b) has not ceased to be a
Participant pursuant to Section 2.3.

  1.13 "Participant's Account" or "Account" shall mean, as to any Participant,
the separate account maintained on the books of the Company in order to reflect
his or her interest under the Plan.

  1.14 "Plan" shall mean The PMI Group, Inc. Directors' Deferred Compensation
Plan, as set forth in this instrument and as hereafter amended from time to
time.

  1.15 "Plan Year" shall mean the twelve month period beginning June 1 and
ending May 31.

  1.16 "Nonemployee Director" means a member of the Board of Directors who is an
employee of neither the Company nor of any Affiliate.

                                       4
<PAGE>

                                   SECTION 2
                                 PARTICIPATION

  2.1  Participation. Each Nonemployee Director's decision to become a
Participant shall be entirely voluntary.

       2.1.1   Current Nonemployee Directors. Each Nonemployee Director who both
(a) is such on July 1, 1997, and (b) previously elected to make Compensation
Deferrals under the Plan for the 1997 Plan Year, shall have his or her
Compensation Deferral election continue in effect for the remainder of the 1997
Plan Year only (and subject to the other provisions of the Plan).

       2.1.2   Initial Elections by New Nonemployee Directors. Each individual
who first becomes a Nonemployee Director after July 1, 1997 may elect to become
a Participant in the Plan by electing, within thirty days of the date of his or
her hire or promotion (as the case may be), to make Compensation Deferrals under
the Plan. An election under this Section 2.1.2 to make Compensation Deferrals
shall be effective only for the remainder of the Plan Year with respect to which
the election is made.

       2.1.3   Elections for Subsequent Plan Years. A Nonemployee Director may
elect to become a Participant (or to continue or reinstate his or her active
participation) in the Plan for any subsequent Plan Year by electing, no later
than January 30 of the preceding Plan Year, to make Compensation Deferrals under
the Plan. An election under this Section 2.1.3 to make Compensation Deferrals
shall be effective only for the Plan Year with respect to which the election is
made.

       2.1.4   No Election Changes During Plan Year. After the beginning of a
Plan Year, a Participant shall not be permitted to change or revoke his or her
deferral election for such Plan Year, except to the limited extent provided in
Section 2.2.

       2.1.5   Specific Timing and Method of Election. Notwithstanding any
contrary provision of this Section 2.1, the Committee, in its sole discretion,
shall determine the manner and deadlines for Participants to make Compensation
Deferral elections. The deadlines prescribed by the Committee may be earlier
than the deadlines specified in this Section 2.1, but shall not be later than
such specified deadlines.

  2.2  Suspension of Compensation Deferrals.

       2.2.1   Automatic Suspension. In the event that a Participant receives a
financial hardship withdrawal from The PMI Group, Inc. Savings and Profit-
Sharing Plan or any other plan (maintained by the Company or an Affiliate) which
contains a qualified cash or deferred arrangement under section 401(k) of the
Internal Revenue Code of 1986, as amended (collectively, the "401(k) Plans"),
the Participant's Compensation Deferrals under the Plan (if any) shall be
suspended for a period of twelve (12) months from the date that the Participant

                                       5
<PAGE>

received such hardship withdrawal. Notwithstanding the preceding, the
Participant's Compensation Deferrals shall be not be so suspended if the
Committee determines that such suspension is not required in order to preserve
the tax-qualification of the 401(k) Plans.

       2.2.2   Permissible Suspension. In the event that a Participant incurs a
Financial Hardship, the Committee, in its sole discretion, may suspend the
Participant's Compensation Deferrals for the remainder of the Plan Year.
However, an election to make Compensation Deferrals under Section 2.1 shall be
irrevocable as to amounts deferred as of the effective date of any suspension in
accordance with this Section 2.2.2.

  2.3  Termination of Participation. A Nonemployee Director who has become a
Participant shall remain a Participant until his or her entire vested Account
balance is distributed. However, a Nonemployee Director who has become a
Participant may or may not be an active Participant making Compensation
Deferrals for a particular Plan Year, depending upon whether he or she has
elected to make Compensation Deferrals for such Plan Year.

                                   SECTION 3
                        COMPENSATION DEFERRAL ELECTIONS

  3.1  Compensation Deferrals. At the times and in the manner prescribed in
Section 2.1, each Nonemployee Director may elect to defer portions of his or her
Compensation and to have the amounts of such deferrals credited to his or her
Account. For each Plan Year, a Nonemployee Director may elect to defer an amount
equal to any percentage or any specific dollar amount of his or her
Compensation, provided that the percentage or dollar amount elected by the
Participant shall result in an expected deferral of not less than $5,000 of his
or her Compensation. Notwithstanding any contrary provision of the Plan, the
Committee may reduce a Participant's Compensation Deferrals to the extent
necessary to satisfy any deductions required by law.

  3.2  Crediting of Compensation Deferrals. The amounts deferred pursuant to
Section 3.1 shall reduce the Participant's Compensation for the Plan Year and
shall be credited to the Participant's Account as of the date on which the
amounts (but for the deferral) otherwise would have been paid to the
Participant. For each Plan Year, the exact dollar amount to be deferred from
each Compensation payment shall be determined by the Committee under such
formulae as it shall adopt from time to time.

  3.3  Deemed Investment Return on Accounts. Although no assets will be
segregated or otherwise set aside with respect to a Participant's Account, the
amount that is ultimately payable to the Participant with respect to his or her
Account shall be determined as if such Account had been invested in common stock
of the Company (including reinvestment of any deemed dividends). The Committee,
in its sole discretion, shall adopt (and may modify from time to time) such
rules and procedures as it deems necessary or appropriate to implement the
deemed investment of the Participants' Accounts. However, such procedures may
differ among Participants or classes of Participants, as determined by the
Committee in its discretion.

                                       6
<PAGE>

  3.4  Form of Payment. Each Participant shall indicate on his or her deferral
election (made pursuant to Section 3.1) the form of payment for the Compensation
Deferrals made pursuant to such election. A Participant may elect (a) a lump sum
payment, or (b) a fixed number of annual installment payments (not to exceed
ten). A Participant's election as to the form of payment shall apply to all
amounts credited to the Participant's Account for the Plan Year with respect to
which the election is made, and except to the limited extent provided in Section
3.6, shall be irrevocable.

  3.5  Term of Deferral. Each Participant shall indicate on his or her deferral
election made pursuant to Section 3.1 the time for payment for Compensation
Deferrals (and deemed investment returns, gains and losses thereon) made
pursuant to such election. A Participant may elect a term of deferral equal to
any whole number (not less than one) of calendar years specified in his or her
deferral election. In addition, pursuant to such procedures as the Committee (in
its discretion) may adopt from time to time, a Participant may elect a term of
deferral which ends upon the later (or earlier) of the expiration of a specified
period or the occurrence of a specific event (for example, the later of ten
years or termination of service on the Board of Directors). A Participant's
election as to the term of deferral shall apply to all amounts credited to the
Participant's Account for the Plan Year with respect to which the election is
made, and except to the limited extent provided in Section 3.6, shall be
irrevocable.

  3.6  Changes in Elections as to Term and Form for Payment. A Participant may
change his or her election under Section 3.4 and/or Section 3.5 for amounts
credited to the Participant's Account for any Plan Year, provided that any such
election will be effective only if (a) such election is made at least two Plan
Years prior to the Plan Year in which payment of such amounts is scheduled to
commence (without giving effect to such election), (b) the newly elected
scheduled payment commencement date is not earlier than the second Plan Year
after the Plan Year in which such election is made, and (c) payment of such
amounts has not actually commenced. For example, if a Participant initially
elected to receive his or 1999 Plan Year deferrals in a lump sum to be paid
during the 2003 Plan Year, the Participant instead may elect to receive payment
in the form of ten annual installments commencing during the 2004 Plan Year,
provided that such election is made on or before December 31, 2001. (i.e., not
                                                                     ----
less than two Plan Years prior to the Plan Year in which payment of such amounts
previously was scheduled to commence, and with a newly elected scheduled payment
commencement date which is not earlier than the second Plan Year after the Plan
Year in which such election is made).

                                   SECTION 4
                                  ACCOUNTING

  4.1  Participants' Accounts. For each Plan Year, at the direction of the
Committee, there shall be established and maintained on the books of the
Company, a separate Account or Accounts for each Participant to which shall be
credited all Compensation Deferrals made by the Participant during such Plan
Year, and deemed investment returns, gains and losses on such Compensation
Deferrals.

                                       7
<PAGE>

  4.2  Participants Remain Unsecured Creditors. All amounts credited to a
Participant's Account under the Plan shall continue for all purposes to be a
part of the general assets of the Company. Each Participant's interest in the
Plan shall make him or her only a general, unsecured creditor of the Company.

  4.3  Accounting Methods. The accounting methods or formulae to be used under
the Plan for the purpose of maintaining the Participants' Accounts, including
the calculation and crediting (or debiting) of deemed returns, gains and losses,
shall be determined by the Committee, in its sole discretion. The accounting
methods or formulae selected by the Committee may be revised from time to time.

  4.4  Reports. Each Participant shall be furnished with periodic statements of
his or her Account, reflecting the status of his or her interest in the Plan, at
least annually.

                                   SECTION 5
                                 DISTRIBUTIONS

  5.1  Normal Time for Distribution. Subject to Sections 5.2 through 5.5 and
Section 5.10, distribution of the balance credited to a Participant's Account
shall commence as soon as administratively practicable after the end of the
term(s) of deferral elected by the Participant under Section 3.5, in accordance
with the following rules. If, pursuant to Section 3.4, the Participant elected
to receive annual installment payments, his or her first installment shall be
equal to the balance then credited to his or her Account, divided by the number
of installments to be made. Each subsequent annual installment shall be paid to
the Participant as near as administratively practicable to each anniversary of
the first installment payment. The amount of each subsequent installment shall
be equal to the balance then credited to the Participant's Account, divided by
the number of installments remaining to be made. While a Participant's Account
is in installment payout status, the unpaid balance credited to the
Participant's Account shall continue to be credited (or debited) with deemed
investment returns, gains and losses under Section 3.3.

  5.2  Change of Control. If there is a Change of Control, the balance then
credited to a Participant's Account shall be distributed to him or her in a lump
sum as soon as administratively practicable after the date of the Change of
Control. Deemed investment returns, gains and losses shall be credited (or
debited) prior to any such accelerated distribution in accordance with Section
3.3. The amount of any such accelerated lump sum distribution shall also include
any amount that the Participant deferred but which has not yet been credited to
his or her Account.

  5.3  Special Rule for Death or Disability. If a Participant dies or becomes
Disabled, the balance then credited to his or her Account shall be distributed
to the Participant (or his or her Beneficiary) at the time and in the form
elected by the Participant pursuant to Sections 3.4 and 3.5; provided, however,
that the Committee, in its sole discretion, may elect to distribute such amount
in a lump sum as soon as administratively practicable after the date of death or

                                       8
<PAGE>

Disability. In accordance with Section 3.3, deemed investment returns, gains and
losses shall be credited (or debited) prior to any such accelerated
distribution.

  5.4  Special Rule re Deductibility. Notwithstanding any contrary provision of
Section 5.1, any payment scheduled for a particular Plan Year shall not be made
in such Plan Year to the extent necessary to avoid application of the
deductibility limitation of section 162(m) of the Code. (For this purpose,
deductibility shall be determined by adding such payment to all other
compensation paid by the Company and its Affiliates to the Participant during
the Plan Year.) If, pursuant to the foregoing sentences, any amounts are not
paid when originally scheduled, such amounts shall be paid in the first
subsequent taxable year in which such payments would not be subject to the
deductibility limitation of section 162(m) of the Code. During any such delay in
payment, unpaid amounts shall continue to be credited (or debited) with deemed
investment returns, gains and losses under Section 3.3. Notwithstanding the
foregoing, distribution of a Participant's Account shall be made without regard
to the deductibility limitation of section 162(m) of the Code if the time for
distribution is accelerated pursuant to Section 5.2 or Section 5.3.

  5.5  Latest Permissible Distribution Date. Notwithstanding any contrary
provision of this Section 5, any amount which is credited to a Participant's
Account on January 15 of the second calendar year following the year in which
the Participant terminates service on the Board of Directors shall be
distributed to the Participant (or his or her Beneficiary) in a single lump sum
as soon as administratively practicable after such January 15. Any such amount
shall continue to be credited (or debited) with deemed investment returns, gains
and losses until the date of payment. For example, if a Participant terminates
service on the Board of Directors during July 2000, and an amount remains
credited to his or her Account on January 15, 2002 (after application of the
other provisions of Section 5), then such amount (as increased or decreased by
deemed investment returns, gains and losses) shall be distributed to the
Participant (or his or her Beneficiary) in a lump sum as soon as
administratively practicable after January 15, 2002.

  5.6  Beneficiary Designations. Each Participant may, pursuant to such
procedures as the Committee may specify, designate one or more Beneficiaries.

       5.6.1   Spousal Consent. If a Participant designates a person other than
or in addition to his or her spouse as a primary Beneficiary, the designation
shall be ineffective unless the Participant's spouse consents to the
designation. Any spousal consent required under this Section 5.6 shall be
ineffective unless it (a) is set forth in writing in a form specified in the
discretion of the Committee, (b) acknowledges the effect of the Participant's
designation of another person as his or her Beneficiary under the Plan, and (c)
is signed by the spouse and witnessed by an authorized agent of the Committee or
a notary public. Notwithstanding this consent requirement, if the Participant
establishes to the satisfaction of the Committee that written spousal consent
may not be obtained because the spouse cannot be located, his or her designation
shall be effective without a spousal consent. Any spousal consent required under
this Section 5.6 shall be valid only with respect to the spouse who signs the
consent. A Participant may revoke his or her Beneficiary designation at any
time, provided that such revocation is in writing.

                                       9
<PAGE>

       5.6.2   Changes and Failed Designations. A Participant may designate
different Beneficiaries (or may revoke a prior Beneficiary designation) at any
time by delivering a new designation (or revocation of a prior designation) in
accordance with Section 5.6.1. Any designation or revocation shall be effective
only if it is received by the Committee. However, when so received, the
designation or revocation shall be effective as of the date the notice is
executed (whether or not the Participant still is living), but without prejudice
to the Committee on account of any payment made before the change is recorded.
The last effective designation received by the Committee shall supersede all
prior designations. If a Participant dies without having effectively designated
a Beneficiary, or if no Beneficiary survives the Participant, the Participant's
Account shall be payable to his or her surviving spouse, or, if the Participant
is not survived by his or her spouse, the Account shall be paid to his or her
estate.

  5.7  Financial Hardship. In the event that a Participant incurs a Financial
Hardship, the Committee, in its sole discretion and notwithstanding any contrary
provision of the Plan, may determine that all or part of the Participant's
Account shall be paid to him or her immediately; provided, however, that the
amount paid to the Participant pursuant to this Section 5.7 shall be limited to
the amount reasonably necessary to alleviate the Participant's Financial
Hardship. Also, payment under this Section 5.7 may not be made to the extent
that the hardship may be relieved by suspension of the Participant's
Compensation Deferrals in accordance with Section 2.2.

  5.8  Payments to Incompetents. If any individual to whom a benefit is payable
under the Plan is a minor or legally incompetent, the Committee shall determine
whether payment shall be made directly to the individual, any person acting as
his or her custodian or legal guardian under the California Uniform Transfers to
Minors Act, his or her legal representative or a near relative, or directly for
his or her support, maintenance or education.

  5.9  Undistributable Accounts. Each Participant and (in the event of death)
his or her Beneficiary shall keep the Committee advised of his or her current
address. If the Committee is unable to locate the Participant or Beneficiary to
whom a Participant's Account is payable under this Section 5, the Participant's
Account shall continue to be credited (or debited) with deemed investment
returns, gains and losses in accordance with Section 3.3. Accounts that, in
accordance with the preceding sentence, have been undistributable for a period
of thirty-five months shall be forfeited as of the end of the thirty-fifth
month. If a Participant whose Account was forfeited under this Section 5.9 (or
his or her Beneficiary) files a claim for distribution of the Account after the
date on which it was forfeited, and if the Committee determines that such claim
is valid, then the forfeited balance shall be paid by the Company in a lump sum
cash payment as soon as practicable thereafter (without interest or any deemed
investment returns, gains or losses after the date of forfeiture).

  5.10 Committee Discretion. Within the specific time periods described in this
Section 5, the Committee shall have sole discretion to determine the specific
timing of the payment of any Account balance under the Plan. In addition and
notwithstanding any contrary provision of the Plan, the Committee, in its sole
discretion, may cause the balance credited to a

                                       10
<PAGE>

Participant's Account to be paid to him or her in a lump sum at any time
following the Participant's cessation of service on the Board of Directors.

                                   SECTION 6
                       PARTICIPANT'S INTEREST IN ACCOUNT

  6.1  Compensation Deferral Contributions. Subject to Sections 8.1 (relating to
creditor status) and 9.2 (relating to amendment and/or termination of the Plan),
a Participant's interest in the balance credited to his or her Account at all
times shall be 100% vested and nonforfeitable.

                                   SECTION 7
                          ADMINISTRATION OF THE PLAN

  7.1  Committee. The Plan shall be administered by the Committee. The Committee
shall have the authority to control and manage the operation and administration
of the Plan. Any member of the Committee may resign at any time by notice in
writing mailed or delivered to the Secretary of the Company.

  7.2  Actions by Committee. Each decision of a majority of the members of the
Committee then in office shall constitute the final and binding act of the
Committee. The Committee may act with or without a meeting being called or held
and shall keep minutes of all meetings held and a record of all actions taken by
written consent.

  7.3  Powers of Committee. The Committee shall have all powers and discretion
necessary or appropriate to supervise the administration of the Plan and to
control its operation in accordance with its terms, including, but not by way of
limitation, the following powers:

       (a) to interpret and determine the meaning and validity of the provisions
       of the Plan and to determine any question arising under, or in connection
       with, the administration, operation or validity of the Plan or any
       amendment thereto;

       (b) to determine any and all considerations affecting the eligibility of
       any Nonemployee Director to become a Participant or remain a Participant
       in the Plan;

       (c) to cause one or more separate Accounts to be maintained for each
       Participant;

       (d) to cause Compensation Deferrals and deemed investment returns, gains
       and losses to be credited to Participants' Accounts;

       (e) to establish and revise a method or procedure for the deemed
       investment of Participants' Accounts, as provided in Section 3.3;

                                       11
<PAGE>

       (f) to establish and revise an accounting method or formula for the Plan,
       as provided in Section 4.3;

       (g) to determine the manner and form in which any distribution is to be
       made under the Plan;

       (h) to determine the manner and form for making elections under the Plan;

       (i) to determine the status and rights of Participants and their spouses,
       Beneficiaries or estates;

       (j) to employ such counsel, agents and advisers, and to obtain such
       legal, clerical and other services, as it may deem necessary or
       appropriate in carrying out the provisions of the Plan;

       (k) to establish, from time to time, rules for the performance of its
       powers and duties and for the administration of the Plan;

       (l) to arrange for annual distribution to each Participant of a statement
       of benefits accrued under the Plan;

       (m) to publish a claims and appeal procedure pursuant to which
       individuals or estates may claim Plan benefits and appeal denials of such
       claims;

       (n) to delegate to any one or more of its members or to any other person,
       severally or jointly, the authority to perform for and on behalf of the
       Committee one or more of the functions of the Committee under the Plan;
       and

       (o) to decide all issues and questions regarding Account balances, and
       the time, form, manner and amount of distributions to Participants.

  7.4  Decisions of Committee. All actions, interpretations, and decisions of
the Committee shall be conclusive and binding on all persons, and shall be given
the maximum possible deference allowed by law.

  7.5  Administrative Expenses. All expenses incurred in the administration of
the Plan by the Committee, or otherwise, including legal fees and expenses,
shall be paid and borne by the Company.

  7.6  Eligibility to Participate. No member of the Committee who is also a
Nonemployee Director shall be excluded from participating in the Plan if
otherwise eligible, but he or she shall not be entitled, as a member of the
Committee, to act or pass upon any matters pertaining specifically to his or her
own Account under the Plan.

  7.7  Indemnification. The Company shall, and hereby does, indemnify and hold
harmless the members of the Committee, from and against any and all losses,
claims, damages or liabilities (including attorneys' fees and amounts paid, with
the approval of the Board of

                                       12
<PAGE>

Directors, in settlement of any claim) arising out of or resulting from the
implementation of a duty, act or decision with respect to the Plan, so long as
such duty, act or decision does not involve gross negligence or willful
misconduct on the part of any such individual.

                                   SECTION 8
                                    FUNDING

  8.1  Unfunded Plan. All amounts credited to a Participant's Account under the
Plan shall continue for all purposes to be a part of the general assets of the
Company. The interest of the Participant in his or her Account, including his or
her right to distribution thereof, shall be an unsecured claim against the
general assets of the Company. Nothing contained in the Plan shall give any
Participant or beneficiary any interest in or claim against any specific assets
of the Company.

                                   SECTION 9
                      MODIFICATION OR TERMINATION OF PLAN

  9.1  Company's Obligation is Limited. The Company intends to continue the Plan
indefinitely, and to maintain each Participant's Account until it is scheduled
to be paid to him or her in accordance with the provisions of the Plan. However,
the Plan is voluntary on the part of the Company, and the Company does not
guarantee to continue the Plan. The Company at any time may, by amendment of the
Plan, suspend Compensation Deferrals or may discontinue Compensation Deferrals,
with or without cause. Complete discontinuance of all Compensation Deferrals
shall be deemed a termination of the Plan.

  9.2  Right to Amend or Terminate. The Board of Directors, in its sole
discretion, may amend or terminate the Plan, or any part thereof, at any time
and for any reason, provided that no amendment or termination of the Plan shall,
without the consent of the Participant, reduce the balance then credited to the
Participant's Account.

  9.3  Effect of Termination. If the Plan is terminated pursuant to this Section
9, the balances credited to the Accounts of the affected Participants shall be
distributed to them at the time and in the manner set forth in Section 5;
provided, however, that the Committee, in its sole discretion, may authorize
accelerated distribution of Participants' Accounts as of any earlier date.

                                  SECTION 10
                              GENERAL PROVISIONS

  10.1 Inalienability. In no event may any Participant, Beneficiary, spouse or
estate sell, transfer, anticipate, assign, hypothecate, or otherwise dispose of
any right or interest under the Plan; and such rights and interests shall not at
any time be subject to the claims of creditors nor be liable to attachment,
execution or other legal process. Accordingly, for example, a Participant's
interest in the Plan is not transferable pursuant to a domestic relations order.

                                       13
<PAGE>

  10.2 Rights and Duties. Neither the Company nor the Committee shall be subject
to any liability or duty under the Plan except as expressly provided in the
Plan, or for any action taken, omitted or suffered in good faith.

  10.3 No Enlargement of Rights. Neither the establishment or maintenance of the
Plan, the making of any Compensation Deferrals nor any action of the Company or
the Committee, shall be held or construed to confer upon any individual any
right to be continue as a member of the Board of Directors.

  10.4 Compliance with Rule 16b-3. All transactions under the Plan are intended
to be exempt from liability under section 16(b) of the Securities Exchange Act
of 1934, as amended ("section 16(b)"). To the extent deemed necessary or
advisable by the Committee, any election, payment, distribution or other
transaction by or on behalf of any Nonemployee Director may be canceled or
delayed in order to ensure that such payment will not result in any liability
under section 16(b) to such individual.

  10.5 Compensation Deferrals Not Counted Under Other Employee Benefit Plans.
Compensation Deferrals under the Plan will not be considered for purposes of
contributions or benefits under any other employee benefit plan sponsored by the
Company or any Affiliate, except to the extent specifically provided in any such
plan.

  10.6 Applicable Law. The provisions of the Plan shall be construed,
administered and enforced in accordance with the laws of the State of California
(other than its conflict of laws provisions).

  10.7 Severability. If any provision of the Plan is held invalid or
unenforceable, its invalidity or unenforceability shall not affect any other
provisions of the Plan, and in lieu of each provision which is held invalid or
unenforceable, there shall be added as part of the Plan a provision that shall
be as similar in terms to such invalid or unenforceable provision as may be
possible and be valid, legal, and enforceable.

  10.8 Captions. The captions contained in and the table of contents prefixed to
the Plan are inserted only as a matter of convenience and for reference and in
no way define, limit, enlarge or describe the scope or intent of the Plan nor in
any way shall affect the construction of any provision of the Plan.

                                       14
<PAGE>

                                   EXECUTION

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

                                    THE PMI GROUP, INC.


Dated:  __________, 1999            By _______________________________
                                       Title:

                                       15