We expect a significant majority of losses and LAE on insured loans in PMI’s current portfolio to occur between the second and fourth years after loan origination. Approximately 90% of PMI’s insurance in force at December 31, 2005 was written after January 1, 2002. We expect that the continuing impact of the seasoning of the 2003 and earlier book years on total losses and LAE was greatest in 2005, with some continued impact in 2006. At December 31, 2005, PMI’s 2003 and earlier book years represented 42.9% of PMI’s primary insurance in force. To the extent we continue to have high levels of PMI’s insurance in force that are in, or approaching, their peak loss development years, total losses and LAE may continue to increase. In addition, higher concentrations of PMI’s portfolio of Alt-A loans, ARMs and high LTV loans could cause losses and LAE to increase. Changes in economic conditions, including mortgage interest rates, U.S. unemployment, job creation, and home prices could significantly impact our estimates and, therefore, PMI’s total losses and LAE. In addition, changes in economic conditions may not necessarily be reflected in PMI’s loss development in the year in which such changes occur.
Other pool products-Prior to 2002, PMI offered certain pool insurance products to lenders and government sponsored enterprises (“GSE Pool”) and to the capital markets (“Old Pool”). GSE Pool and Old Pool products insure all losses on individual loans held within a pool of insured loans up to the stop loss limit for the entire pool. GSE Pool risk in force was $0.1 billion at December 31, 2005, $0.1 billion at December 31, 2004 and $0.5 billion at December 31, 2003. Old Pool risk in force was $0.4 billion at December 31, 2005, $0.5 billion at December 31, 2004 and $0.7 billion at December 31, 2003.
a decline in the market value of a security below cost or amortized cost for a continuous period of at least six months;
On November 3, 2005, the FASB Staff issued FASB Staff Position (“FSP”) SFAS Nos. 115-1 and 124-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (“FSP Nos. 115-1 and 124-1”). FSP Nos. 115-1 and 124-1 addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. These FSPs also include accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in these FSP’s will be applied to reporting periods beginning after December 15, 2005. FSP Nos. 115-1 and 124-1 are not expected to significantly impact the Company’s consolidated statements of operations or consolidated financial condition.
municipal bond holdings. Holdings in states and the District of Columbia that exceed 5% of the U.S. municipal bond portfolio at December 31, for the respective years are presented below:
Leases-The Company leases certain office space and office equipment. Minimum rental payments under non-cancelable operating leases in the aggregate for the five years subsequent to 2005 are as follows:
Rent expense for all leases was $5.3 million for 2005, $7.0 million for 2004 and $7.0 million for 2003.
Common Stock-In November 2003 and in connection with the Company’s investment in FGIC, the Company issued 5.75 million shares of common stock and raised $219.7 million of gross proceeds in addition to 13.8 million equity units, disclosed in Note 10. Long-Term Debt and Line of Credit. Each equity unit consists of a senior note and a purchase contract. The purchase contract will obligate the holders to purchase, no later than November 15, 2006, shares of the Company’s common stock subject to anti-dilution adjustments. The number of shares of common stock which will be purchased depends upon the 20-trading day average closing price at the date of purchase adjusted by changes in the Company’s common stock dividend rate. As of December 31, 2005, the maximum and minimum settlement rates of the Company’s common stock that can be purchased were 0.6554 and 0.5286 shares per purchase contract, respectively. The settlement rate per unit changed in comparison to prior periods as a result of an increase in the Company’s common stock dividend rate in 2005 and 2004. The equity units contain a dividend protection provision whereby the settlement rate increases if the Company increases the common stock dividend rate relative to when the equity units were issued.
The following condensed financial statement information represents the Company’s proportionate share and has been presented on a combined basis for all equity investees and unconsolidated majority owned subsidiaries accounted for under the equity method as of and for the years ended: