Document:

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                              THE PMI GROUP, INC.
                             EQUITY INCENTIVE PLAN

                         (August 16, 1999 Restatement)
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                               TABLE OF CONTENTS

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      SECTION 1       BACKGROUND, PURPOSE AND DURATION..............................    1
            1.1   Effective Date....................................................    1
            1.2   Purpose of the Plan...............................................    1

      SECTION 2       DEFINITIONS...................................................    1
            2.1   "1934 Act"........................................................    1
            2.2   "Affiliate".......................................................    1
            2.3   "Award"...........................................................    1
            2.4   "Award Agreement".................................................    1
            2.5   "Board"...........................................................    1
            2.6   "Change of Control"...............................................    2
            2.7   "Code"............................................................    3
            2.8   "Committee".......................................................    3
            2.9   "Company".........................................................    4
           2.10   "Consultant"......................................................    4
           2.11   "Deferred Compensation Account"...................................    4
           2.12   "Determination Date"..............................................    4
           2.13   "Director"........................................................    4
           2.14   "Disability"......................................................    4
           2.15   "Employee"........................................................    4
           2.16   "Exercise Price"..................................................    4
           2.17   "Fair Market Value"...............................................    4
           2.18   "Fiscal Year".....................................................    4
           2.19   "Grant Date"......................................................    4
           2.20   "Incentive Stock Option"..........................................    4
           2.21   "Nonqualified Stock Option".......................................    4
           2.22   "Option"..........................................................    5
           2.23   "Participant".....................................................    5
           2.24   "Performance Goals"...............................................    5
           2.25   "Performance Period"..............................................    5
           2.26   "Performance Share"...............................................    5
           2.27   "Performance Unit"................................................    5
           2.28   "Period of Restriction"...........................................    5
           2.29   "Plan"............................................................    5
           2.30   "Restricted Stock"................................................    5
           2.31   "Retirement"......................................................    5
           2.32   "Rule 16b-3"......................................................    5
           2.33   "Section 16 Person"...............................................    6
           2.34   "Share"...........................................................    6
           2.35   "Stock Unit"......................................................    6
           2.36   "Subsidiary"......................................................    6
           2.37   "Termination of Service"..........................................    6

      SECTION 3       ADMINISTRATION................................................    6
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                               TABLE OF CONTENTS
                                  (continued)
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            3.1   The Committee.....................................................    6
            3.2   Authority of the Committee........................................    6
            3.3   Delegation by the Committee.......................................    7
            3.4   Decisions Binding.................................................    7

      SECTION 4       SHARES SUBJECT TO THE PLAN....................................    7
            4.1   Number of Shares..................................................    7
            4.2   Lapsed Awards.....................................................    7
            4.3   Adjustments in Awards and Authorized Shares.......................    7

      SECTION 5       STOCK OPTIONS.................................................    8
            5.1   Grant of Options..................................................    8
            5.2   Award Agreement...................................................    8
            5.3   Exercise Price....................................................    8
                  5.3.1   Nonqualified Stock Options................................    8
                  5.3.2   Incentive Stock Options...................................    8
                  5.3.3   Substitute Options........................................    8
            5.4   Expiration of Options.............................................    8
                  5.4.1   Expiration Dates..........................................    8
                  5.4.2   Death of Participant......................................    9
                  5.4.3   Committee Discretion......................................    9
            5.5   Exercisability of Options.........................................    9
                  5.5.1   Special Rule for Retirement, Death and Disability.........    9
                  5.5.2   Special Rule for Change of Control........................    9
            5.6   Payment...........................................................   10
            5.7   Restrictions on Share Transferability.............................   10
            5.8   Deferral..........................................................   10
                  5.8.1   Election to Defer Option Proceeds.........................   10
                  5.8.2   Form and Timing of Payment................................   11
                  5.8.3   Participants Remain Unsecured Creditors...................   11
                  5.8.4   Nontransferability of Deferred Option Compensation
                          Accounts..................................................   11
                  5.8.5   Provisions of the Officer Deferred Compensation
                          Plan May Govern...........................................   11
            5.9   Certain Additional Provisions for Incentive Stock Options.........   11
                  5.9.1   Exercisability............................................   11
                  5.9.2   Termination of Service....................................   11
                  5.9.3   Company and Subsidiaries Only.............................   11
                  5.9.4   Expiration................................................   11
           5.10   Grant of Reload Options...........................................   12

      SECTION 6       RESTRICTED STOCK..............................................   12
            6.1   Grant of Restricted Stock.........................................   12
            6.2   Restricted Stock Agreement........................................   12
            6.3   Transferability...................................................   12
            6.4   Other Restrictions................................................   12
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                                        TABLE OF CONTENTS
                                           (continued)
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                  6.4.1   General Restrictions......................................   12
                  6.4.2   Section 162(m) Performance Restrictions...................   12
                  6.4.3   Legend on Certificates....................................   13
            6.5   Removal of Restrictions...........................................   13
                  6.5.1   Special Rule for Retirement, Death and Disability.........   13
                  6.5.2   Special Rule for Change of Control........................   13
            6.6   Voting Rights.....................................................   13
            6.7   Dividends and Other Distributions.................................   13
            6.8   Return of Restricted Stock to Company.............................   14

      SECTION 7       PERFORMANCE UNITS AND PERFORMANCE SHARES......................   14
            7.1   Grant of Performance Units and Shares.............................   14
            7.2   Initial Value.....................................................   14
            7.3   Performance Objectives and Other Terms............................   14
                  7.3.1   General Performance Objectives............................   14
                  7.3.2   Section 162(m) Performance Objectives.....................   14
            7.4   Earning of Performance Units and Performance Shares...............   15
                  7.4.1   Special Rule for Retirement, Death and Disability.........   15
                  7.4.2   Special Rule for Change of Control........................   15
            7.5   Form and Timing of Payment........................................   15
                  7.5.1   Deferrals.................................................   15
            7.6   Cancellation......................................................   15

      SECTION 8       MISCELLANEOUS.................................................   16
            8.1   No Effect on Employment or Service................................   16
            8.2   Participation.....................................................   16
            8.3   Indemnification...................................................   16
            8.4   Successors........................................................   16
            8.5   Beneficiary Designations..........................................   16
            8.6   Nontransferability of Awards......................................   16
            8.7   No Rights as Stockholder..........................................   17
            8.8   Withholding Requirements..........................................   17
            8.9   Withholding Arrangements..........................................   17

      SECTION 9       AMENDMENT, TERMINATION AND DURATION...........................   17
            9.1   Amendment, Suspension or Termination..............................   17
            9.2   Duration of the Plan..............................................   18

     SECTION 10       LEGAL CONSTRUCTION............................................   18
           10.1   Gender and Number.................................................   18
           10.2   Severability......................................................   18
           10.3   Requirements of Law...............................................   18
           10.4   Governing Law.....................................................   18
           10.5   Captions..........................................................   18
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                              THE PMI GROUP, INC.
                             EQUITY INCENTIVE PLAN
                         (August 16, 1999 Restatement)

                                   SECTION 1
                        BACKGROUND, PURPOSE AND DURATION

        1.1  Effective Date.  The PMI Group, Inc. having established the Plan,
             --------------
hereby amends and restates the Plan on the occasion of the Company's 3-for-2
stock split, effective as of August 16, 1999.  Except for changes relating to
the stock split, the terms of the Plan, as in effect prior to February 18, 1999,
shall govern any outstanding Awards granted prior to February 18, 1999.

        1.2  Purpose of the Plan.  The Plan is intended to increase incentives
             -------------------
and to encourage Share ownership on the part of (1) employees of the Company and
its Affiliates, and (2) consultants who provide significant services to the
Company and its Affiliates.  The Plan also is intended to further the growth and
profitability of the Company.  The Plan is 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  "1934 Act" means the Securities Exchange Act of 1934, as amended.
              --------
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing or superseding such section or regulation.

        2.2  "Affiliate" means any corporation or any other entity (including,
              ---------
but not limited to, partnerships and joint ventures) controlling, controlled by,
or under common control with the Company.

        2.3  "Award" means, individually or collectively, a grant under the
              -----
Plan of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock,
Performance Units or Performance Shares.

        2.4  "Award Agreement" means the written agreement setting forth the
              ---------------
terms and provisions applicable to each Award granted under the Plan.

        2.5  "Board" means the Board of Directors of the Company.
              -----

<PAGE>

        2.6  "Change of Control" means:
              -----------------

             (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 twenty percent
(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 (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 2.9.  Notwithstanding the foregoing, in
its sole discretion, the Board may increase the twenty percent (20%) threshold
set forth above in this subsection (a) prior to any acquisition of twenty
percent (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

                                       2
<PAGE>

Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than sixty percent
(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, 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, twenty percent (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 twenty
percent (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 twenty percent (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 2.9,
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.

        2.7  "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.

        2.8  "Committee" means the committee appointed by the Board (pursuant
              ---------
to Section 3.1) to administer the Plan.  Unless otherwise determined by the
Board, the Company's Compensation Committee shall constitute the Committee.

        2.9  "Company" means The PMI Group, Inc., a Delaware corporation, or
              -------
any successor thereto.

                                       3
<PAGE>

        2.10  "Consultant" means any consultant, independent contractor, or
               ----------
other person who provides significant services to the Company or its Affiliates,
but who is neither an Employee nor a Director.

        2.11  "Deferred Compensation Account" means an account established in
               -----------------------------
the name of the Participant on the books and records of the Company pursuant to
Section 5.8.

        2.12  "Determination Date" means the latest possible date that will
               ------------------
not jeopardize an Award's qualification as performance-based compensation under
section 162(m) of the Code.  Notwithstanding the previous sentence, for Awards
not intended to qualify as performance-based compensation, "Determination Date"
shall mean such date as the Committee may determine in its discretion.

        2.13  "Director" means any individual who is a member of the Board.
               --------

        2.14  "Disability" means a permanent and total disability within the
               ----------
meaning of section 22(e)(3) of the Code, provided that in the case of Awards
other than Incentive Stock Options, the Committee in its discretion may
determine whether a permanent and total disability exists in accordance with
uniform and non-discriminatory standards adopted by the Committee from time to
time.

        2.15  "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.

        2.16  "Exercise Price" means the price at which a Share may be
               --------------
purchased by a Participant pursuant to the exercise of an Option.

        2.17  "Fair Market Value" means the mean between the high and low
               -----------------
prices for Shares on the relevant date, or if there were no sales on such date,
the arithmetic mean of the highest and lowest quoted selling prices on the
nearest day before and the nearest day after the relevant date, as determined by
the Committee.

        2.18  "Fiscal Year" means the fiscal year of the Company.
               -----------

        2.19  "Grant Date" means, with respect to an Award, the date that the
               ----------
Award was granted.  The Grant Date shall be the date on which the Committee
approves the material terms of the Award or such later date as the Committee, in
its discretion, may determine.

        2.20  "Incentive Stock Option" means an Option to purchase Shares
               ----------------------
which is designated as an Incentive Stock Option and is intended to meet the
requirements of section 422 of the Code.

        2.21  "Nonqualified Stock Option" means an option to purchase Shares
               -------------------------
which is not intended to be an Incentive Stock Option.

                                       4
<PAGE>

        2.22  "Option" means an Incentive Stock Option or a Nonqualified Stock
               ------
Option.

        2.23  "Participant" means an Employee or Consultant who has an
               -----------
outstanding Award.

        2.24  "Performance Goals" means the goal(s) (or combined goal(s))
               -----------------
determined by the Committee (in its discretion) to be applicable to a
Participant with respect to an Award.  As determined by the Committee, the
Performance Goals applicable to an Award may provide for a targeted level or
levels of achievement using one or more of the following measures:  (a) Cash
Operating Earnings Per Share, (b) Earnings Per Share, (c) Expense Ratio, (d)
Loss Ratio, (e) Market Share, (f) Net Income, (g) Net Operating Income Earnings
Per Share, (h) Net Operating Income Per Share, (i) New Insurance Written, (j)
Price to Earnings Ratio, (k) Return on Average Equity, (l) Risk in Force, and
(m) Total Shareholder Return.  The Performance Goals may differ from Participant
to Participant and from Award to Award.  Any criteria used may be measured in
absolute terms or as compared to another company or companies.  Any criteria
used may be measured against the performance of the Company as a whole or a
segment of the Company.

        2.25  "Performance Period" means any period of not less than twelve
               ------------------
consecutive calendar months, as determined by the Committee, in its sole
discretion.

        2.26  "Performance Share" means a Performance Share granted to a
               -----------------
Participant pursuant to Section 7.

        2.27  "Performance Unit" means a Performance Unit granted to a
               ----------------
Participant pursuant to Section 7.

        2.28  "Period of Restriction" means the period during which shares of
               ---------------------
Restricted Stock are subject to forfeiture and/or restrictions on
transferability.

        2.29  "Plan" means The PMI Group, Inc. Equity Incentive Plan, as set
               ----
forth in this instrument and as hereafter amended from time to time.

        2.30  "Restricted Stock" means an Award granted to a Participant
               ----------------
pursuant to Section 6.

        2.31  "Retirement" means, in the case of an Employee, (a) a
               ----------
Termination of Service occurring on or after age sixty five (65), (b) a
Termination of Service at or after age 55 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 Section 16 Person, such early
retirement must be approved by the Committee.  With respect to a Consultant, no
Termination of Service shall be deemed to be on account of "Retirement."

        2.32  "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, as
               ----------
amended, and any future regulation amending, supplementing or superseding such
regulation.

                                       5
<PAGE>

        2.33  "Section 16 Person" means a person who, with respect to the
               -----------------
Shares, is subject to section 16 of the 1934 Act.

        2.34  "Share" means one share of the Company's common stock, $.01 par
               -----
value.

        2.35  "Stock Unit" means a bookkeeping entry initially representing an
               ----------
amount equivalent to the Fair Market Value of one Share covered by the exercise
of an Option in respect of which the Participant has made a deferral election
pursuant to Section 5.8.  Stock Units represent an unfunded and unsecured
obligation of the Company.

        2.36  "Subsidiary" means any corporation in an unbroken chain of
               ----------
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

        2.37  "Termination of Service" means (a) in the case of an Employee, a
               ----------------------
cessation of the employee-employer relationship between an Employee and the
Company or an Affiliate for any reason, 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; and (b) in the
case of a Consultant, a cessation of the service relationship between a
Consultant and the Company or an Affiliate for any reason, including, but not by
way of limitation, a termination by resignation, discharge, death, Disability,
or the disaffiliation of an Affiliate, but excluding any such termination where
there is a simultaneous re-engagement of the consultant by the Company or an
Affiliate.

                                   SECTION 3
                                ADMINISTRATION

        3.1  The Committee.  The Plan shall be administered by the Committee.
             -------------
The Committee shall consist of not less than two (2) Directors.  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 (a) a "non-
employee director" under Rule 16b-3, and (b) 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.

        3.2  Authority of the Committee.  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 and Consultants shall be granted
Awards, (b) prescribe the terms and conditions of the 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 and Consultants 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.  Except

                                       6
<PAGE>

as provided in Section 4.3, after an Award has been granted, the Committee shall
not reduce the Exercise Price of the Award (or cancel the Award and grant a
substitute Award having a lower Exercise Price).

        3.3  Delegation by the Committee.  The Committee, in its sole
             ---------------------------
discretion and on such terms and conditions as it may provide, may delegate all
or any 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 not
delegate its authority and powers (a) with respect to Section 16 Persons, (b) in
any way which would jeopardize the Plan's qualification under Rule 16b-3, or (c)
with respect to Awards which are intended to qualify as performance-based
compensation under section 162(m) of the Code.

        3.4  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.

                                   SECTION 4
                           SHARES SUBJECT TO THE PLAN

        4.1  Number of Shares.  Subject to adjustment as provided in Section
             ----------------
4.3, the total number of Shares available for grant under the Plan shall not
exceed 4,350,000. Notwithstanding the preceding, the aggregate number of Shares
subject to Awards of Restricted Stock granted under the Plan shall not exceed
135,000 and the aggregate number of Shares subject to Awards of Performance
Units and Performance Shares granted under the Plan shall not exceed 135,000.
Shares granted under the Plan may be either authorized but unissued Shares or
treasury Shares.

        4.2  Lapsed Awards.  If an Award terminates, expires, or lapses for
             -------------
any reason, any Shares subject to such Award again shall be available to be the
subject of an Award.  In addition, if any Shares are tendered to the Company
(whether by physical delivery or attestation) as full or partial payment for the
exercise of an Option or in satisfaction of a tax withholding obligation
pursuant to an Award, only the net Shares issued shall be deemed delivered for
purposes of determining the maximum number of Shares that may be delivered under
Section 4.1.

        4.3  Adjustments in Awards and Authorized Shares.  In the event of any
             -------------------------------------------
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares, the Committee shall
adjust the number and class of Shares which may be delivered under the Plan, the
number, class, and price of Shares subject to outstanding Awards, and the
numerical limit of Section 5.1, 6.1 and 7.1 in such manner as the Committee (in
its sole discretion) shall determine to be appropriate to prevent the dilution
or diminution of such Awards.

                                       7
<PAGE>

                                   SECTION 5
                                 STOCK OPTIONS

        5.1  Grant of Options.  Subject to the terms and provisions of the
             ----------------
Plan, Options may be granted to Employees and Consultants at any time and from
time to time as determined by the Committee in its sole discretion.  The
Committee, in its sole discretion, shall determine the number of Shares subject
to each Option, provided that during any Fiscal Year, no Participant shall be
granted Options covering more than 300,000 Shares.  The Committee may grant
Incentive Stock Options, Nonqualified Stock Options, or a combination thereof.

        5.2  Award Agreement.  Each Option shall be evidenced by an Award
             ---------------
Agreement that shall specify the Exercise Price, the expiration date of the
Option, the number of Shares to which the Option pertains, any conditions to
exercise of the Option, and such other terms and conditions as the Committee, in
its discretion, shall determine.  The Award Agreement shall specify whether the
Option is intended to be an Incentive Stock Option or a Nonqualified Stock
Option.

        5.3  Exercise Price.  Subject to the provisions of this Section 5.3,
             --------------
the Exercise Price for each Option shall be determined by the Committee in its
sole discretion.

            5.3.1  Nonqualified Stock Options.  In the case of a Nonqualified
                   --------------------------
Stock Option, the Exercise Price shall be not less than one hundred percent
(100%) of the Fair Market Value of a Share on the Grant Date.

            5.3.2  Incentive Stock Options.  In the case of an Incentive Stock
                   -----------------------
Option, the Exercise Price shall be not less than one hundred percent (100%) of
the Fair Market Value of a Share on the Grant Date; provided, however, that if
on the Grant Date, the Employee (together with persons whose stock ownership is
attributed to the Employee pursuant to section 424(d) of the Code) owns stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any of its Subsidiaries, the Exercise Price
shall be not less than one hundred and ten percent (110%) of the Fair Market
Value of a Share on the Grant Date.

            5.3.3     Substitute Options.  Notwithstanding the provisions of
                      ------------------
Sections 5.3.1 and 5.3.2, in the event that the Company or an Affiliate
consummates a transaction described in section 424(a) of the Code (e.g., the
acquisition of property or stock from an unrelated corporation), persons who
become Employees or Consultants on account of such transaction may be granted
Options in substitution for options granted by their former employer.  If such
substitute Options are granted, the Committee, in its sole discretion and
consistent with section 424(a) of the Code, shall determine the exercise price
of such substitute Options.

        5.4  Expiration of Options.
             ---------------------

             5.4.1  Expiration Dates.  Each Option shall terminate no later
                    ----------------
than the first to occur of the following events:

                (a) The expiration of ten (10) years from the Grant Date; or

                                       8
<PAGE>

                (b) The expiration of one (1) year from the date of the
Participant's Termination of Service for a reason other than the Participant's
death, Disability or Retirement; or

                (c) The expiration of three (3) years from the date of the
Participant's Termination of Service by reason of Disability; or

                (d) The expiration of three (3) years from the date of the
Participant's Retirement (subject to Section 5.9.2 regarding Incentive Stock
Options); or

                (e) The date for termination of the Option determined by the
Committee in its sole discretion and set forth in the written Award Agreement.

                5.4.2 Death of Participant. Notwithstanding Section 5.4.1, if a
                      --------------------
Participant who is an Employee dies prior to the expiration of his or her
Options, the Committee, in its discretion, may provide that his or her Options
shall be exercisable for up to three (3) years after the date of death. If a
Participant who is a Consultant dies prior to the expiration of his or her
Options, the Committee, in its discretion, may provide that his or her Options
shall be exercisable for up to three (3) years after the date of death.

                5.4.3 Committee Discretion. Subject to the limits of Sections
                      --------------------
5.4.1 and 5.4.2, the Committee, in its sole discretion, (a) shall provide in
each Award Agreement when each Option expires and becomes unexercisable, and (b)
may, after an Option is granted and before such Option expires, extend the
maximum term of the Option (subject to Section 5.9.4 regarding Incentive Stock
Options).

        5.5  Exercisability of Options.  Options granted under the Plan shall
             -------------------------
be exercisable at such times and be subject to such restrictions and conditions
as the Committee shall determine in its sole discretion.  After an Option is
granted, the Committee, in its sole discretion, may accelerate the
exercisability of the Option.

                5.5.1  Special Rule for Retirement, Death and Disability.
                       -------------------------------------------------
Notwithstanding any contrary provision of the Plan, the right to exercise each
Option shall accrue as to one hundred percent (100%) of the Shares subject to
such Option upon the Participant's Termination of Service due to Retirement,
death or Disability.

                5.5.2  Special Rule for Change of Control.  Notwithstanding any
                       ----------------------------------
contrary provision of the Plan, immediately upon the occurrence of a Change of
Control that occurs prior to a Participant's Termination of Service, the right
to exercise each Option then outstanding shall accrue as to one hundred percent
(100%) of the Shares subject to such Option.  Notwithstanding the preceding
provisions of this Section 5.5.2, if the Committee determines that the
acceleration of vesting of Options following a Change of Control would cause a
Change of Control transaction to be ineligible for pooling of interests
accounting under APB No. 16, which transaction (but for such accelerated
vesting) otherwise would have been eligible for such accounting treatment, the
Committee, in its sole discretion, may determine that no such accelerated
vesting shall occur.

        5.6  Payment.  Options shall be exercised by the Participant's
             -------
delivery of a written notice of exercise to the Secretary of the Company (or its
designee), setting forth the

                                       9
<PAGE>

number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.

        Upon the exercise of any Option, the Exercise Price shall be payable
to the Company in full in cash or its equivalent.  The Committee, in its sole
discretion, also may permit exercise (a) by tendering previously acquired Shares
having an aggregate Fair Market Value at the time of exercise equal to the total
Exercise Price, or (b) by any other means which the Committee, in its sole
discretion, determines to both provide legal consideration for the Shares, and
to be consistent with the purposes of the Plan.

        Subject to Section 5.8, as soon as practicable after receipt of a
written notification of exercise and full payment for the Shares purchased, the
Company shall deliver to the Participant (or the Participant's designated
broker), Share certificates (which may be in book entry form) representing such
Shares.

        5.7  Restrictions on Share Transferability.  The Committee may impose
             -------------------------------------
such restrictions on any Shares acquired pursuant to the exercise of an Option
as it may deem advisable, including, but not limited to, restrictions related to
applicable Federal securities laws, the requirements of any national securities
exchange or system upon which Shares are then listed or traded, or any blue sky
or state securities laws.

        5.8  Deferral.
             --------

             5.8.1  Election to Defer Option Proceeds.  Notwithstanding any
                    ---------------------------------
contrary provision of the Plan, a Participant who is eligible to defer income
under the Company's Officer Deferred Compensation Plan may elect, at the
discretion of, and in accordance with rules which may be established by, the
Committee, to defer delivery of the proceeds of exercise of an Option which is
exercised by means of an exchange of Shares as described in Section 5.6(a),
provided that Shares tendered or applied in exercise of such Option shall have
been held by the Participant for at least six (6) months prior to such exercise.
A Participant's election as provided in the preceding sentence shall be
irrevocable.  Notwithstanding any other provision of this Section 5.8, a
deferral election made by a Participant pursuant to this Section 5.8.1 shall be
void and shall not be given effect unless (i) the Participant's deferral
election is made at least six (6) full calendar months prior to the calendar
month in which the Option otherwise would expire, (ii) the Participant's
deferral election is made at least six (6) full calendar months prior to the
calendar month in which the Option is exercised, and (iii) the Participant is
employed by or is rendering services to the Company or any of its Subsidiaries
on the date of exercise of the Option.  For purposes of either or both of
clauses (i) or (ii) of the preceding sentence, rules established by the
Committee may require an election earlier than the six (6) calendar month period
described therein.  Upon exercise of an Option to which a deferral election
applies, the Shares covered by such exercise shall not be issued or transferred
to the Participant, and instead, a number of Stock Units equal to the number of
Shares covered by such exercise and in respect of which the Participant has made
a deferral election, shall be credited to a Deferred Option Compensation Account
at the date of exercise.  A separate Deferred Option Compensation Account shall
be maintained with respect to each Participant and to each effective deferral
election.

                                       10
<PAGE>

             5.8.2  Form and Timing of Payment.  Payment of Stock Units shall be
                    --------------------------
made by issuance of Shares on such date or dates or upon the occurrence of such
event or events as the Committee may authorize the Participant to designate at
the time a deferral election under Section 5.8.1 is made, provided, however,
that in no event shall payment occur more than sixty (60) days after a
Participant's Termination of Service for any reason.  The number of Shares to be
so distributed may be increased by dividend equivalents, which may be valued as
if reinvested in Shares.  Until payment of a Stock Unit is made, the number of
Shares represented by a Stock Unit shall be subject to adjustment pursuant to
Section 4.3.

             5.8.3 Participants Remain Unsecured Creditors. Participants have
                   ---------------------------------------
the status of general unsecured creditors of the Company with respect to their
Deferred Option Compensation Accounts, and such accounts constitute a mere
promise by the Company to make payments with respect thereto.

             5.8.4 Nontransferability of Deferred Option Compensation Accounts.
                   -----------------------------------------------------------
A Participant's right to benefit payments with respect to the Deferred Option
Compensation Accounts may not be anticipated, alienated, sold, transferred,
assigned, pledged, encumbered, attached or garnished by creditors of the
Participant or the Participant's beneficiary and any attempt to do so shall be
void and shall not be given effect.

             5.8.5  Provisions of the Officer Deferred Compensation Plan May
                    --------------------------------------------------------
Govern.  To the extent determined by the Committee, any amount deferred under
this Section 5.8, and any Deferred Option Compensation Account, may be treated
and held as a portion of the Company's Officer Deferred Compensation Plan, in
which event the provisions of such plan shall govern the operation and
administration of amounts deferred under this Section 5.8 and credited to
Deferred Option Compensation Accounts.

        5.9  Certain Additional Provisions for Incentive Stock Options.
             ---------------------------------------------------------

             5.9.1 Exercisability. The aggregate Fair Market Value (determined
                   --------------
on the Grant Date(s)) of the Shares with respect to which Incentive Stock
Options are exercisable for the first time by any Employee during any calendar
year (under all plans of the Company and its Subsidiaries) shall not exceed
$100,000.

             5.9.2 Termination of Service. If any portion of an Incentive Stock
                   ----------------------
Option is exercised more than three (3) months after the Participant's
Termination of Service for any reason other than Disability or death (unless (a)
the Participant dies during such three-month period, and (b) the Award Agreement
or the Committee permits later exercise), the portion so exercised shall be
deemed a Nonqualified Stock Option.

             5.9.3 Company and Subsidiaries Only. Incentive Stock Options may be
                   -----------------------------
granted only to persons who are employees of the Company or a Subsidiary on the
Grant Date.

             5.9.4 Expiration. No Incentive Stock Option may be exercised after
                   ----------
the expiration of ten (10) years from the Grant Date; provided, however, that if
the Option is granted to an Employee who, together with persons whose stock
ownership is attributed to the Employee

                                       11
<PAGE>

pursuant to section 424(d) of the Code, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of the stock of
the Company or any of its Subsidiaries, the Option may not be exercised after
the expiration of five (5) years from the Grant Date.

        5.10  Grant of Reload Options.  The Committee may provide in an Award
              -----------------------
Agreement that a Participant who exercises all or part of an Option by payment
of the Exercise Price with already-owned Shares, shall be granted an additional
option (a "Reload Option") for a number of shares of stock equal to the number
of Shares tendered to exercise the previously granted Option plus, if the
Committee so determines, any Shares withheld or delivered in satisfaction of any
tax withholding requirements.  As determined by the Committee, each Reload
Option shall (a) have a Grant Date which is the date as of which the previously
granted Option is exercised, and (b) be exercisable on the same terms and
conditions as the previously granted Option, except that the Exercise Price
shall be determined as of the Grant Date.

                                   SECTION 6
                                RESTRICTED STOCK

        6.1  Grant of Restricted Stock.  Subject to the terms and provisions
             -------------------------
of the Plan, the Committee, at any time and from time to time, may grant Shares
of Restricted Stock to Employees and Consultants in such amounts as the
Committee, in its sole discretion, shall determine.  The Committee, in its sole
discretion, shall determine the number of Shares to be granted to each
Participant, provided that during any Fiscal Year, no Participant shall be
granted more than 15,000 Shares of Restricted Stock.

        6.2  Restricted Stock Agreement.  Each Award of Restricted Stock shall
             --------------------------
be evidenced by an Award Agreement that shall specify the Period of Restriction,
the number of Shares granted, any price to be paid for the Shares, and such
other terms and conditions as the Committee, in its sole discretion, shall
determine.  Unless the Committee determines otherwise, Shares of Restricted
Stock shall be held by the Company as escrow agent until the restrictions on
such Shares have lapsed.

        6.3  Transferability.  Shares of Restricted Stock may not be sold,
             ---------------
transferred, pledged, assigned, or otherwise alienated or hypothecated until the
end of the applicable Period of Restriction.

        6.4  Other Restrictions.  The Committee, in its sole discretion, may
             ------------------
impose such other restrictions on Shares of Restricted Stock as it may deem
advisable or appropriate, in accordance with this Section 6.4.

             6.4.1 General Restrictions. The Committee may set restrictions
based upon the achievement of specific performance objectives (Company-wide,
business unit or individual), applicable federal or state securities laws, or
any other basis determined by the Committee in its discretion.

                                       12
<PAGE>

             6.4.2  Section 162(m) Performance Restrictions.  For purposes of
                    ---------------------------------------
qualifying grants of Restricted Stock as "performance-based compensation" under
section 162(m) of the Code, the Committee, in its discretion, may set
restrictions based upon the achievement of Performance Goals.  The Performance
Goals shall be set by the Committee on or before the latest date permissible to
enable the Restricted Stock to qualify as "performance-based compensation" under
section 162(m) of the Code.  In granting Restricted Stock which is intended to
qualify under section 162(m) of the Code, the Committee shall follow any
procedures determined by it from time to time to be necessary or appropriate to
ensure qualification of the Restricted Stock under section 162(m) of the Code
(e.g., in determining the Performance Goals).

             6.4.3 Legend on Certificates. The Committee, in its discretion, may
                   ----------------------
legend the certificates representing Restricted Stock to give appropriate notice
of such restrictions. For example, the Committee may determine that some or all
certificates representing Shares of Restricted Stock shall bear the following
legend:

          "The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is subject
to certain restrictions on transfer as set forth in The PMI Group, Inc. Equity
Incentive Plan, and in a Restricted Stock Agreement.  A copy of the Plan and
such Restricted Stock Agreement may be obtained from the Secretary of The PMI
Group, Inc."

        6.5  Removal of Restrictions.  Shares of Restricted Stock covered by
             -----------------------
each Restricted Stock grant made under the Plan shall be released from escrow as
soon as practicable after the last day of the Period of Restriction.  The
Committee, in its discretion, may accelerate the time at which any restrictions
shall lapse, and remove any restrictions.  After the restrictions have lapsed,
the Participant shall be entitled to have any legend or legends under Section
6.4 removed from his or her Share certificate, and the Shares shall be freely
transferable by the Participant.

             6.5.1  Special Rule for Retirement, Death and Disability.
                    -------------------------------------------------
Notwithstanding any contrary provision of the Plan, one hundred percent (100%)
of any outstanding Shares of Restricted Stock shall be one hundred percent
(100%) vested in the Participant upon the Participant's Termination of Service
due to Retirement, death or Disability.

             6.5.2  Special Rule for Change of Control.  Notwithstanding any
                    ----------------------------------
contrary provision of the Plan, immediately upon the occurrence of a Change of
Control that occurs prior to a Participant's Termination of Service, one hundred
percent (100%) of any outstanding Shares of Restricted Stock shall be one
hundred percent (100%) vested in the Participant.  Notwithstanding the preceding
provisions of this Section 6.5.2, if the Committee determines that the
acceleration of vesting of Restricted Stock following a Change of Control would
cause a Change of Control transaction to be ineligible for pooling of interests
accounting under APB No. 16, which transaction (but for such accelerated
vesting) otherwise would have been eligible for such accounting treatment, the
Committee, in its sole discretion, may determine that no such accelerated
vesting shall occur.

                                       13
<PAGE>

        6.6  Voting Rights.  During the Period of Restriction, Participants
             -------------
holding Shares of Restricted Stock granted hereunder may exercise full voting
rights with respect to those Shares, unless otherwise provided in the Award
Agreement.

        6.7  Dividends and Other Distributions.  During the Period of
             ---------------------------------
Restriction, Participants holding Shares of Restricted Stock shall be entitled
to receive all dividends and other distributions paid with respect to such
Shares unless otherwise provided in the Award Agreement.  If any such dividends
or distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability and forfeitability as the Shares of Restricted
Stock with respect to which they were paid.

        6.8  Return of Restricted Stock to Company.  On the date set forth in
             -------------------------------------
the Award Agreement, the Restricted Stock for which restrictions have not lapsed
shall revert to the Company and again shall become available for grant under the
Plan.

                                   SECTION 7
                    PERFORMANCE UNITS AND PERFORMANCE SHARES

        7.1  Grant of Performance Units and Shares.  Performance Units and
             -------------------------------------
Performance Shares may be granted to Employees and Consultants at any time and
from time to time, as shall be determined by the Committee, in its sole
discretion.  The Committee shall have complete discretion in determining the
number of Performance Units and Performance Shares granted to any Participant,
provided that during any Fiscal Year no more than 15,000 Performance Units or
Performance Shares may be granted to any Participant.

        7.2  Initial Value.  Each Performance Unit shall have an initial value
             -------------
that is established by the Committee on or before the Grant Date, provided that
such value shall not exceed the Fair Market Value of a Share on the Grant Date.
Each Performance Share shall have an initial value equal to the Fair Market
Value of a Share on the Grant Date.

        7.3  Performance Objectives and Other Terms.  The Committee shall set
             --------------------------------------
performance objectives in its discretion which, depending on the extent to which
they are met, will determine the number or value of Performance Units or Shares
that will be paid out to the Participants.  The Committee may set performance
objectives based upon the achievement of Company-wide, business unit, or
individual goals, or any other basis determined by the Committee in its
discretion.  The time period during which the performance objectives must be met
shall be called the "Performance Period."  Each Award of Performance Units or
Shares shall be evidenced by an Award Agreement that shall specify the
Performance Period, and such other terms and conditions as the Committee, in its
sole discretion, shall determine.

             7.3.1  General Performance Objectives.  The Committee may set
                    ------------------------------
performance objectives based upon the achievement of Company-wide, business unit
or individual goals, or any other basis determined by the Committee in its
discretion.

             7.3.2  Section 162(m) Performance Objectives.  For purposes of
                    -------------------------------------
qualifying grants of Performance Units or Shares as "performance-based
compensation" under

                                       14
<PAGE>

section 162(m) of the Code, the Committee, in its discretion, may determine that
the performance objectives applicable to Performance Units or Shares shall be
based on the achievement of Performance Goals. The Performance Goals shall be
set by the Committee on or before the latest date permissible to enable the
Performance Units or Shares to qualify as "performance-based compensation" under
section 162(m) of the Code. In granting Performance Units or Shares which are
intended to qualify under section 162(m) of the Code, the Committee shall follow
any procedures determined by it from time to time to be necessary or appropriate
to ensure qualification of the Performance Units or Shares under section 162(m)
of the Code (e.g., in determining the Performance Goals).

        7.4  Earning of Performance Units and Performance Shares.  After the
             ---------------------------------------------------
applicable Performance Period has ended, the Participant shall be entitled to
receive a payout of the number of Performance Units or Shares earned during the
Performance Period, depending upon the extent to which the applicable
performance objectives have been achieved.  After the grant of a Performance
Unit or Share, the Committee, in its sole discretion, may reduce or waive any
performance objectives for Award, except with respect to Awards which are
intended to qualify as performance-based compensation under Section 162(m) of
the Code.

             7.4.1  Special Rule for Retirement, Death and Disability.
                    -------------------------------------------------
Notwithstanding any contrary provision of the Plan, upon the Participant's
Termination of Service due to Retirement, death or Disability, one hundred
percent (100%) of any outstanding Performance Units or Shares shall be deemed to
be earned and shall be immediately payable to the Participant, or, in cases
where a Participant has received a target award of Performance Units or Shares,
one hundred percent (100%) of the target amount shall vest.

             7.4.2  Special Rule for Change of Control.  Notwithstanding any
                    ----------------------------------
contrary provision of the Plan, immediately upon the occurrence of a Change of
Control that occurs prior to a Participant's Termination of Service, one hundred
percent (100%) of any outstanding Performance Units or Shares shall be deemed to
be earned and shall be immediately payable to the Participant, or, in cases
where a Participant has received a target award of Performance Units or Shares,
one hundred percent (100%) of the target amount shall vest.  Notwithstanding the
preceding provisions of this Section 7.4.2, if the Committee determines that the
acceleration of vesting of Performance Units or Shares following a Change of
Control would cause a Change of Control transaction to be ineligible for pooling
of interests accounting under APB No. 16, which transaction (but for such
accelerated vesting) otherwise would have been eligible for such accounting
treatment, the Committee, in its sole discretion, may determine that no such
accelerated vesting shall occur.

        7.5  Form and Timing of Payment.  Subject to Section 7.5.1, payment of
             --------------------------
earned Performance Units or Performance Shares shall be made as soon as
practicable after the expiration of the applicable Performance Period.  The
Committee, in its sole discretion, may pay such earned Awards in cash, Shares or
a combination thereof.

             7.5.1 Deferrals. The Committee, in its sole discretion, may permit
                   ---------
a Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise

                                       15
<PAGE>

be delivered to a Participant under this Section 7.5. Any such deferral
elections shall be subject to such rules and procedures as shall be determined
by the Committee in its sole discretion.

        7.6  Cancellation.  On the date set forth in the Award Agreement, all
             ------------
unearned or unvested Performance Units or Performance Shares shall be forfeited
to the Company, and again shall be available for grant under the Plan.

                                   SECTION 8

                                 MISCELLANEOUS

        8.1  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.

        8.2  Participation.  No Employee or Consultant 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.

        8.3  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 Agreement, 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.

        8.4  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.

        8.5  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

                                       16
<PAGE>

at the Participant's death shall be paid to the Participant's estate and,
subject to the terms of the Plan and of the applicable Award Agreement, any
unexercised vested Award may be exercised by the administrator or executor of
the Participant's estate.

        8.6  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 8.5.  All rights with respect to an Award
granted to a Participant shall be available during his or her lifetime only to
the Participant.  Notwithstanding the foregoing, the Participant may, in a
manner specified by the Committee, transfer a Nonqualified Stock Option by bona
fide gift and not for any consideration, to (a) a member of the Participant's
immediate family, (b) a trust or other entity for the exclusive benefit of the
Participant and/or a member or members of the Participant's immediate family,
(c) a partnership, limited liability company or other entity whose only partners
or members are the Participant and/or a member or members of the Participant's
immediate family, or (d) a tax-qualified, not for profit organization.

        8.7  No Rights as Stockholder.  Except to the limited extent provided
             ------------------------
in Sections 6.6 and 6.7, no Participant (nor any beneficiary) shall have any of
the rights or privileges of a stockholder of the Company with respect to any
Shares issuable pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant (or beneficiary).

        8.8  Withholding Requirements.  Prior to the delivery of any Shares or
             ------------------------
cash pursuant to an Award (or exercise thereof), the Company shall have the
power and the right to deduct or withhold, or require a Participant to remit to
the Company, an amount sufficient to satisfy federal, state, local and foreign
taxes (including the Participant's FICA obligation) required to be withheld with
respect to such Award (or exercise thereof).  Notwithstanding any contrary
provision of the Plan, if a Participant fails to remit to the Company such
withholding amount within the time period specified by the Committee (in its
discretion), the Participant's Award may, in the Committee's discretion, be
forfeited and in such case the Participant shall not receive any of the Shares
subject to such Award.

        8.9  Withholding Arrangements.  The Committee, in its sole discretion
             ------------------------
and pursuant to such procedures as it may specify from time to time, may permit
or require a Participant to satisfy all or part of the tax withholding
obligations in connection with an Award by (a) having the Company withhold
otherwise deliverable Shares, or (b) delivering to the Company already-owned
Shares having a Fair Market Value equal to the amount required to be withheld.
The amount of the withholding requirement shall be deemed to include any amount
which the Committee determines, not to exceed the amount determined by using the
maximum federal, state, local or foreign jurisdiction marginal income tax rates
applicable to the Participant with respect to the Award on the date that the
amount of tax to be withheld is to be determined.  The Fair Market Value of the
Shares to be withheld or delivered shall be determined as of the date that the
taxes are required to be withheld.

                                       17
<PAGE>

                                   SECTION 9
                      AMENDMENT, TERMINATION AND DURATION

        9.1  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 Award theretofore granted to such Participant.  No Award
may be granted during any period of suspension or after termination of the Plan.

        9.2  Duration of the Plan.  The Plan shall commence on the date
             --------------------
specified herein, and subject to Section 9.1 (regarding the Board's right to
amend or terminate the Plan), shall remain in effect thereafter.  However,
without further stockholder approval, no Incentive Stock Option may be granted
under the Plan after ten (10) years from the Effective Date.

                                   SECTION 10
                               LEGAL CONSTRUCTION

        10.1  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.

        10.2  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.

        10.3  Requirements of Law.  The granting of Awards and the issuance of
              -------------------
Shares 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.

        10.4  Governing Law.  The Plan and all Award Agreements 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.

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

                                       18
<PAGE>

                                   EXECUTION

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

                                      THE PMI GROUP, INC.

Dated: August __, 1999                By _________________________
                                      Name:  Charles F. Broom
                                      Title: Vice President, Human Resources

                                       19<PAGE>

                              THE PMI GROUP, INC.

                     STOCK PLAN FOR NON-EMPLOYEE DIRECTORS

                  (Amended and Restated as of August 16, 1999)
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                Page
<S>        <C>                                                                                  <C>
SECTION 1   PURPOSE...........................................................................   1
     1.1    Purpose of the Plan...............................................................   1
SECTION 2   DEFINITIONS.......................................................................   1
SECTION 3   ADMINISTRATION....................................................................   2
     3.1    The Committee.....................................................................   2
     3.2    Authority of the Committee........................................................   2
     3.3    Decisions Binding.................................................................   3
SECTION 4   SHARES SUBJECT TO THE PLAN........................................................   3
     4.1    Number of Shares..................................................................   3
     4.2    Lapsed Awards.....................................................................   3
     4.3    Adjustments in Awards and Authorized Shares.......................................   3
SECTION 5   STOCK OPTIONS.....................................................................   3
     5.1    Granting of Options...............................................................   3
     5.2    Terms of Options..................................................................   4
     5.3    Payment...........................................................................   4
     5.4    Deferral of Option Proceeds.......................................................   5
     5.5    Options are not Incentive Stock Options...........................................   6
SECTION 6   RESTRICTED STOCK..................................................................   6
     6.1    Grant of Restricted Stock to Directors Serving on the 1996 Grant Date.............   6
     6.2    Grant of Restricted Stock for Directors first elected after the 1996 Grant
            Date..............................................................................   6
     6.3    Restricted Stock Escrow...........................................................   6
     6.4    Voting and other Rights...........................................................   7
     6.5    Cash Payment for Income Taxes.....................................................   7
SECTION 7   MISCELLANEOUS.....................................................................   7
     7.1    No Effect on Service..............................................................   7
     7.2    Indemnification...................................................................   7
     7.3    Successors........................................................................   7
     7.4    Beneficiary Designations..........................................................   7
     7.5    Nontransferability of Awards......................................................   8
     7.6    No Rights as Stockholder..........................................................   8
</TABLE>

                                      -i-
<PAGE>

<TABLE>
                                                                                                 Page
    <S>                                                                                         <C>
     7.7    Withholding Requirements..........................................................   8
SECTION 8   AMENDMENT, TERMINATION, AND DURATION..............................................   8
     8.1    Amendment or Termination..........................................................   8
     8.2    Duration of the Plan..............................................................   8
SECTION 9   LEGAL CONSTRUCTION................................................................   8
     9.1    Gender and Number.................................................................   8
     9.2    Severability......................................................................   8
     9.3    Requirements of Law...............................................................   8
     9.4    Compliance with Rule 16b-3........................................................   9
     9.5    Governing Law.....................................................................   9
     9.6    Captions..........................................................................   9
</TABLE>

                                     -ii-
<PAGE>

                              THE PMI GROUP, INC.
                     STOCK PLAN FOR NON-EMPLOYEE DIRECTORS

     THE PMI GROUP, INC., hereby amends and restates The PMI Group, Inc. Stock
Plan for Non-Employee Directors on the occasion of the Company's 3-for-2 stock
split, effective as of August 16, 1999.

                                   SECTION 1
                                    PURPOSE

     1.1  Purpose of the Plan.  The Plan is intended to closely align the
          -------------------
interests of the Non-Employee Directors with the interests of the Company's
stockholders.  This is achieved by making a significant portion of Non-Employee
Director compensation directly related to the total return performance of the
Shares.  The Plan also is intended to encourage Share ownership on the part of
Non-Employee Directors.

                                   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    "Award" means, individually or collectively, a grant under the Plan
of Options, Restricted Stock, or cash.

     2.2    "Board" means the Board of Directors of the Company.

     2.3    "Committee" means the committee appointed pursuant to Section 3.1 to
administer the Plan.

     2.4    "Company" means The PMI Group, Inc., a Delaware corporation, or any
successor thereto.

     2.5    "Director" means any individual who is a member of the Board.

     2.6    "Disability" means a permanent and total disability, as determined
by the Committee (in its discretion) in accordance with uniform and non-
discriminatory standards adopted by the Committee from time to time.

     2.7    "Exercise Price" means the price at which a Share may be purchased
by a Participant pursuant to the exercise of an Option.

     2.8    "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.
<PAGE>

     2.9    "Grant Date" means, with respect to 1996 and each subsequent
calendar year, the first business day in June of each such year. For example,
for 1996, the Grant Date is June 3, 1996 (i.e., the first business day in June
1996). With respect to a particular Award, "Grant Date" means the particular
Grant Date on which the Award was granted. Notwithstanding the preceding, a Non-
Employee Director who is first elected or appointed on other than the first
business day in June, shall have an initial Grant Date coincident with the date
of their commencement of service on the Board.

     2.10   "Non-Employee Director" means a Director who is an employee of
neither the Company nor of any Subsidiary.

     2.11   "Option" means an option to purchase Shares granted pursuant to
Section 5.

     2.12  "Option Agreement" means the written agreement setting forth the
terms and provisions applicable to each Option granted under the Plan.

     2.13   "Participant" means a Non-Employee Director who has an outstanding
Award.

     2.14   "Plan" means The PMI Group, Inc. Stock Plan for Non-Employee
Directors, as set forth in this instrument and as hereafter amended from time to
time.

     2.15   "Restricted Stock" means an Award of Shares granted pursuant to
Section 6.

     2.16   "Shares" means the shares of the Company's common stock, $0.01 par
value.

     2.17   "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.

     2.18   "Termination of Service" means a cessation of the Participant's
service on the Board for any reason.

                                   SECTION 3
                                ADMINISTRATION

     3.1    The Committee. The Plan shall be administered by the Committee. The
            -------------
Committee shall consist of one or more Directors who shall be appointed by, and
serve at the pleasure of, the Company's Chief Executive Officer.  The Committee
shall be comprised solely of a Director or Directors who are not eligible to
receive Awards under the Plan.

     3.2    Authority of the Committee. 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) interpret the Plan and the Awards, (b) adopt rules for the administration,
interpretation and application of the Plan as are consistent therewith, (c)
interpret, amend or revoke any such rules, and (d) adopt such procedures and
subplans as are necessary or

                                       2
<PAGE>

appropriate to permit participation in the Plan by Non-Employee Directors who
are foreign nationals or employed outside of the United States.

     3.3  Decisions Binding.  All determinations and decisions made by the
          -----------------
Committee shall be final, conclusive, and binding on all persons, and shall be
given the maximum deference permitted by law.

                                   SECTION 4
                          SHARES SUBJECT TO THE PLAN

     4.1  Number of Shares.  Subject to adjustment as provided in Section 4.3,
          ----------------
the total number of Shares available for grant under the Plan shall not exceed
150,000.  Shares issued under the Plan may be either authorized but unissued
Shares or treasury Shares, provided, however, that only treasury Shares may be
issued upon exercise of the portion of each Option granted on or after May 20,
1999 that pertains to the additional 1,500 Shares covered by Options granted on
or after such date.

     4.2  Lapsed Awards.  If an Award terminates or expires for any reason, any
          -------------
Shares subject to such Award again shall be available to be the subject of an
Award.

     4.3  Adjustments in Awards and Authorized Shares.  In the event of any
          -------------------------------------------
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, split-up, Share combination, or other change in the
corporate structure of the Company affecting the Shares, the Committee shall
adjust the number and class of Shares which may be delivered under the Plan, and
the number, class, and Exercise Price of Shares subject to outstanding Awards
and future grants, in such manner as the Committee (in its sole discretion)
shall determine to be appropriate to prevent the dilution or diminution of such
Awards.  Notwithstanding the preceding, the number of Shares subject to any
Award always shall be a whole number.

                                   SECTION 5
                                 STOCK OPTIONS

     5.1  Granting of Options.
          -------------------

          5.1.1  Directors serving on the 1996 Grant Date.  Each Non-Employee
                 ----------------------------------------
Director who is such on the 1996 Grant Date, automatically shall receive, as of
the 1996 Grant Date only, an Option to purchase 4,500 Shares.  Each Non-Employee
who has received an Option pursuant to the preceding sentence also automatically
shall receive, as of each subsequent Grant Date, an Option to purchase 2,250
Shares, provided that the individual shall receive an Option on any such Grant
Date only if he or she both (a) is a Non-Employee Director on the Grant Date,
and (b) has served as a Non-Employee Director for the entire period since the
last Grant Date.

          5.1.2  Directors first elected or appointed after the 1996 Grant Date.
                 --------------------------------------------------------------
Each Non-Employee Director who first becomes such after the 1996 Grant Date but
before May 20, 1999, automatically shall receive on his or her initial Grant
Date only (a) an Option to purchase 2,250 Shares, plus (b) an option to purchase
up to an additional 2,250 Shares (prorated based on the number of full months of
service which remain until the next Grant Date).  A Director joining the

                                       3
<PAGE>

Board on or before the 15th day of the month will receive credit for service for
the full month. Each Non-Employee Director who first becomes such on or after
May 20, 1999 automatically shall receive on his or her initial Grant Date only
an Option to purchase 6,000 Shares. Each Non-Employee Director who first becomes
such after the 1996 Grant Date also shall automatically receive, as of each
subsequent Grant Date, an Option to purchase 2,250 Shares (3,750 Shares for
grants made on or after May 20, 1999) annually, provided that the individual
shall receive an Option on any such Grant Date only if he or she both (y) is a
Non-Employee Director on the Grant Date, and (z) has served as a Non-Employee
Director for the entire period since the last Grant Date.

     5.2  Terms of Options.
          ----------------

          5.2.1  Option Agreement.  Each Option granted pursuant to this Section
                 ----------------
5 shall be evidenced by a written Option Agreement (satisfactory to the
Committee) which shall be executed by the Optionee and the Company.

          5.2.2  Exercise Price.  The Exercise Price for the Shares subject to
                 --------------
each Option shall be 100% of the Fair Market Value of such Shares on the
applicable Grant Date.

          5.2.3  Exercisability.
                 --------------
         (a)     Each Option granted to a Non-Employee Director in his or her
                 initial year of Board service pursuant to Sections 5.1.2(a) and
                 (b) (e.g. up to 6,000 shares) shall become exercisable in three
                 equal annual installments, commencing on the first anniversary
                 of the applicable Grant Date;

         (b)     For each Non-Employee Director who automatically receives, as
                 of each subsequent Grant Date, an Option to purchase 2,250
                 Shares (3,750 Shares for grants made on or after May 20, 1999)
                 annually, any such outstanding Option, and such awards granted
                 on or after July 23, 1998 shall become exercisable as to 100%
                 of the Shares subject to such Option in full on the first
                 anniversary of the applicable Grant Date.

Notwithstanding the foregoing, with respect to any outstanding Option, and
awards granted on or after May 21, 1998, upon a Non-Employee Director's death,
disability, retirement, resignation or non-reelection to the Board of Directors,
all unvested options held by such person shall immediately become exercisable.
However, except as specifically set forth above, if a Participant incurs a
Termination of Service prior to his or her Option(s) becoming fully exercisable,
the Option(s) (or portions thereof) which are not exercisable on the date of
Termination of Service shall immediately expire.

          5.2.4  Expiration of Options.  Subject to the last sentence of Section
                 ---------------------
5.2.3, each Option shall terminate upon the first to occur of the following
events:

         (a)     The expiration of ten (10) years from the applicable Grant
Date;

                                       4
<PAGE>

         (b)     The expiration of three (3) months from the date of the
Participant's Termination of Service prior to age 70 for any reason other than
the Participant's death or Disability, provided that the Committee, in its
discretion, may extend such three-month period to a maximum of the ten (10)
years;

         (c)     The expiration of two (2) years from the date of the
Participant's Termination of Service by reason of Disability, or

         (d)     The expiration of five (5) years from the date of the
Participant's Termination of Service at or after age 70 for any reason other
than the Participant's death or Disability.

          5.2.5  Death of Director.  Notwithstanding Section 5.2.4, if a
                 -----------------
Director dies prior to the expiration of his or her Option(s) in accordance with
Section 5.2.4, his or her Option(s) which are exercisable on the date of his or
her death shall terminate two (2) years after the date of death.

     5.3  Payment.  Options shall be exercised by the Participant's delivery of
          -------
a written notice of exercise (satisfactory to the Committee) to the Company in
care of VP Human Resources Department, with a copy to General Counsel, Legal
Department, 601 Montgomery Street, San Francisco, California 94111, or at such
other address as Company may hereafter designate in writing, setting forth the
number of Shares with respect to which the Option is to be exercised, and
accompanied by full payment for the Shares.  Upon the exercise of any Option,
the Exercise Price shall be payable to the Company in full in cash or its
equivalent.  As soon as practicable after receipt of a written notification of
exercise and full payment for the Shares purchased, the Company shall deliver to
the Participant (or the Participant's designated broker), Share certificates
(which may be in book-entry form) representing such Shares.

     5.4  Deferral of Option Proceeds.
          ---------------------------

     (a)     Notwithstanding anything herein to the contrary, a Participant
granted an Option hereunder who is eligible to defer income under the Company's
Directors' Deferred Compensation Plan may elect, at the discretion of, and in
accordance with rules which may be established by, the Committee, to defer
delivery of the proceeds of exercise of an Option which is exercised by means of
an exchange of Shares as described in Section 5.4(a)(ii) or (iii), provided, in
either such case, that Shares tendered or applied in exercise of such Option
shall have been held by the Participant for at least six months prior to such
exercise. A Participant's election as provided in the preceding sentence shall
be irrevocable. Notwithstanding any other provision of this Section 5.4, a
deferral election made by a Participant hereunder shall be void and shall not be
given effect unless (i) the Participant's deferral election is made at least six
full calendar months prior to the calendar month in which the option otherwise
would expire, (ii) the Participant's deferral election is made at least six full
calendar months prior to the calendar month in which the option is exercised,
and (iii) the Participant is serving as a Non-Employee Director on the date of
exercise of the Option. For purposes of either or both of clauses (i) or (ii) of
the preceding sentence, rules established by the Committee may require an
election earlier than the six calendar

                                       5
<PAGE>

month period described therein. Upon exercise of an Option to which a deferral
election applies, the Shares covered by such exercise shall not be issued or
transferred to the Participant, and instead, a number of Stock Units, as defined
below, equal to the number of Shares covered by such exercise and in respect of
which the Participant has made a deferral election, shall be credited to an
account in the name of the Participant on the books and records of the Company
(a "Deferred Option Compensation Account") at the date of exercise. A separate
Deferred Option Compensation Account shall be maintained with respect to each
effective deferral election.

     (b)     For purposes of this Section 5.4, a "Stock Unit" is a bookkeeping
entry initially representing an amount equivalent to the fair market value of
one Share. Stock Units represent an unfunded and unsecured obligation of the
Company, except as otherwise provided for by the Committee. Settlement of Stock
Units shall be made by issuance of Shares on such date or dates or upon the
occurrence of such event or events as the Committee may authorize the
Participant to designate at the time a deferral election is made hereunder,
provided, however, that in no event shall settlement occur more than 60 days
after a Participant's Termination of Service for any reason. The number of
Shares to be so distributed may be increased by dividend equivalents, which may
be valued as if reinvested in Shares. Until a Stock Unit is settled, the number
of Shares represented by a Stock Unit shall be subject to adjustment pursuant to
Section 4.3.

     (c)     Participants have the status of general unsecured creditors of the
Company with respect to their Deferred Option Compensation Accounts, and such
accounts constitute a mere promise by the Company to make payments with respect
thereto.

     (d)     A Participant's right to benefit payments with respect to the
Deferred Option Compensation Accounts may not be anticipated, alienated, sold,
transferred, assigned, pledged, encumbered, attached or garnished by creditors
of the Participant or the Participant's beneficiary and any attempt to do so
shall be void and shall not be given effect.

     (e)     To the extent determined by the Committee, any amount deferred
under this Section 5.4, and any Deferred Option Compensation Account, may be
treated and held as a portion of the Company's Officer Deferred Compensation
Plan, in which event the provisions of said plan shall govern the operation and
administration of deferred amounts hereunder and Deferred Option Compensation
Accounts, to the extent not inconsistent with the provisions of this Section
5.4.

     5.5  Options are not Incentive Stock Options.  Options are not intended to
          ---------------------------------------
be incentive stock options within the meaning of Section 422 of the Code.

                                   SECTION 6
                               RESTRICTED STOCK

     6.1  Grant of Restricted Stock to Directors Serving on the 1996 Grant Date.
          ---------------------------------------------------------------------
Each Non-Employee Director who is such on a Grant Date, automatically shall
receive, as of such Grant Date, an Award of 450 Shares of Restricted Stock.
Notwithstanding the preceding, the number of Shares granted to any Non-Employee
Director on any Grant Date shall be reduced if

                                       6
<PAGE>

and as necessary so that the Fair Market Value of the Shares does not exceed
$30,000 on the Grant Date.

     6.2  Grant of Restricted Stock for Directors first elected after the 1996
          --------------------------------------------------------------------
Grant Date.  Each Non-Employee Director who first becomes such after the 1996
----------
Grant Date, automatically shall receive on his or her initial Grant Date only
(a) an Award of 37.5 Shares of Restricted Stock for each full month of service
on the Board until the next Grant Date and, (b) as of each subsequent Grant Date
on which the Non-Employee Director is such, an Award of 450 Shares of Restricted
Stock.  Notwithstanding the preceding, the number of Shares granted to any Non-
Employee Director on any Grant Date shall be reduced if and as necessary so that
the Fair Market Value of the Shares does not exceed $30,000 on the Grant Date.
A Director joining the Board on or before the 15th day of the month will receive
credit for service for the full month.

     6.3  Restricted Stock Escrow.  For purposes of compliance with Section 9.4,
          -----------------------
Shares of Restricted Stock shall not be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated by the Participant until six months after
the applicable Grant Date.  Unless the Committee determines otherwise, Shares of
Restricted Stock shall be either (a) held by the Company as escrow agent until
such six-month period expires, or (b) affixed with an appropriate legend
restricting the sale, transfer, pledge, assignment, or other alienation or
hypothecation of such Shares by the Participant until expiration of the six
month period.

     6.4  Voting and other Rights.  After Shares of Restricted Stock have been
          -----------------------
granted, the Participant may exercise full voting rights with respect to such
Shares.  A Participant shall be entitled to receive all dividends and other
distributions paid with respect to such Shares.  If any such dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions on transferability that are provided in Section 6.2.

     6.5  Cash Payment for Income Taxes.  As soon as practicable after each
          -----------------------------
Grant Date, the Company shall pay to each Non-Employee Director, in cash or its
equivalent, an amount equal to the expected increase in his or her federal,
state and local income tax liability due to the Shares granted to the
Participant on such Grant Date.  The formula for determining each such cash
payment shall be adopted by the Committee (in its discretion) from time to time,
but in each case shall assume that the maximum prevailing income tax rates apply
to the Participant.

                                   SECTION 7
                                 MISCELLANEOUS

     7.1  No Effect on Service.  Nothing in the Plan shall (a) create any
          --------------------
obligation on the part of the Board to nominate any Participant for reelection
by the Company's stockholders, or (b) interfere with or limit in any way the
right of the Company to terminate any Participant's service.

     7.2  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

                                       7
<PAGE>

or she may be involved by reason of any action taken or failure to act under the
Plan or any Option Agreement, 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.

     7.3  Successors.  All obligations of the Company under the Plan 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.

     7.4  Beneficiary Designations.  If permitted by the Committee, a
          ------------------------
Participant 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 and, subject to
the terms of the Plan and of the applicable Option Agreement, any unexercised
vested Award may be exercised by the administrator or executor of the
Participant's estate.

     7.5  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 7.4.  All rights with respect to an Award granted to
a Participant shall be available during his or her lifetime only to the
Participant.  Notwithstanding the foregoing, the Participant may, to the extent
provided in the Plan and in a manner specified by the Committee, transfer an
Option by bona fide gift and not for any consideration, to a member of the
Participant's immediate family or to a trust for the exclusive benefit of the
Participant and/or a member or members of the Participant's immediate family.

     7.6  No Rights as Stockholder.  Except to the limited extent provided in
          ------------------------
Section 6.4, no Participant (nor any beneficiary) shall have any of the rights
or privileges of a stockholder of the Company with respect to any Shares
issuable pursuant to an Award (or exercise thereof), unless and until
certificates representing such Shares shall have been issued, recorded on the
records of the Company or its transfer agents or registrars, and delivered to
the Participant, beneficiary or Company (as escrow agent).

     7.7  Withholding Requirements.  Prior to the delivery of any Shares or cash
          ------------------------
pursuant to an Award (or exercise thereof), the Company shall have the power and
the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy

                                       8
<PAGE>

Federal, state, and local taxes (including the Participant's FICA obligation)
required to be withheld with respect to such Award (or exercise thereof).

                                   SECTION 8
                      AMENDMENT, TERMINATION, AND DURATION

     8.1  Amendment 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 Award theretofore granted to such Participant.

     8.2  Duration of the Plan.  The Plan shall commence on the date specified
          --------------------
herein, and subject to Section 8.1 (regarding the Board's right to amend or
terminate the Plan), shall remain in effect thereafter.

                                   SECTION 9
                               LEGAL CONSTRUCTION

     9.1  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.

     9.2  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.

     9.3  Requirements of Law.  The granting of Awards and the issuance of
          -------------------
Shares 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.

     9.4  Compliance with Rule 16b-3.  For the purpose of ensuring that
          --------------------------
transactions under the Plan do not subject Participants to liability under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), all transactions under the Plan are intended to comply with all
applicable conditions of Rule 16b-3 promulgated under the 1934 Act, and any
future regulation amending, supplementing or superseding such regulation.  To
the extent any provision of the Plan, Option Agreement or action by the
Committee or a Participant fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Committee.

     9.5  Governing Law.  The Plan and all Option Agreements shall be construed
          -------------
in accordance with and governed by the laws of the State of California without
giving effect to any choice or conflict of law provision or rule (whether of the
State of California or otherwise) which would cause the application of the laws
of any jurisdiction other than the State of California.

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

                                       9
<PAGE>

                                   EXECUTION

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

                                            THE PMI GROUP, INC.

          Dated:       ,1999                By
                 ------                       --------------------------

                                            Title:

                                       10

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