Definitive Proxy Statement

TELEPHONE - Call toll-free 1-800-PROXIES (1-800-776-9437) in the United States or 1-718-921-8500 from foreign countries from any touch-tone telephone and follow the instructions. Have your proxy card available when you call and use the Company Number and Account Number shown on your proxy card.

Vote online/phone until 11:59 PM EST the day before the meeting.

COMPANY NUMBER

ACCOUNT NUMBER

MAIL - Sign, date and mail your proxy card in the envelope provided as soon as possible.

IN PERSON - You may vote your shares in person by attending the Annual Meeting.

You are cordially invited to attend the 2009 Annual Meeting of Stockholders of The PMI Group, Inc. to be held on Thursday, May 21, 2009, at 9:00 a.m. Pacific daylight time, at our headquarters located at PMI Plaza, 3003 Oak Road in Walnut Creek, California.

We look forward to greeting you. As explained in the accompanying Notice of Annual Meeting of Stockholders and Proxy Statement, the purposes of the meeting are:

The Board of Directors unanimously recommends that you vote FOR the nominees for director identified in the Proxy Statement, FOR ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm and FOR approval of the PMI Amended and Restated Equity Incentive Plan.

At the meeting, we will report on our business and there will be an opportunity for you to ask questions.

WHETHER OR NOT YOU EXPECT TO ATTEND, TO ENSURE YOUR REPRESENTATION AT THE MEETING AND THE PRESENCE OF A QUORUM, PLEASE COMPLETE, DATE, SIGN AND MAIL THE ENCLOSED PROXY CARD PROMPTLY. STOCKHOLDERS OF RECORD MAY ALSO GIVE THEIR PROXY BY TELEPHONE IN ACCORDANCE WITH THE INSTRUCTIONS ACCOMPANYING THE PROXY CARD. ANY PERSON GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME BEFORE IT IS VOTED AND STOCKHOLDERS WHO ARE PRESENT AT THE MEETING MAY WITHDRAW THEIR PROXIES AND VOTE IN PERSON.

/s/ L. Stephen Smith

L. Stephen Smith

Chairman of the Board and

Chief Executive Officer

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of The PMI Group, Inc., a Delaware corporation, will be held on Thursday, May 21, 2009, at 9:00 a.m. Pacific daylight time, at our headquarters located at PMI Plaza, 3003 Oak Road, Walnut Creek, California 94597, for the following purposes:

The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.

Only stockholders of record at the close of business on March 26, 2009 are entitled to notice of and to vote at the meeting and any adjournment or postponement thereof.

By Order of the Board of Directors

/s/ Andrew D. Cameron

Andrew D. Cameron

Group Senior Vice President, General Counsel and Secretary

This Proxy Statement and the accompanying proxy are being mailed on or about April 3, 2009 in connection with the solicitation of proxies on behalf of the Board of Directors of The PMI Group, Inc., a Delaware corporation (“PMI” or the “Company”), for use at the Annual Meeting of Stockholders to be held Thursday, May 21, 2009 at 9:00 a.m. Pacific daylight time at our headquarters located at PMI Plaza, 3003 Oak Road, Walnut Creek, California and at any adjournment or postponement thereof (the “Annual Meeting”).

Our principal executive office is located at PMI Plaza, 3003 Oak Road, Walnut Creek, California 94597. The telephone number at that address is (925) 658-7878.

RECORD DATE AND SHARES OUTSTANDING. The record date for determining stockholders entitled to notice of, and to vote at, the Annual Meeting is March 26, 2009 (the “Record Date”). As of the close of business on that date, approximately 82,292,284 shares of common stock were outstanding and eligible to vote at the Annual Meeting.

REVOCABILITY OF PROXIES. A proxy is revocable by written notice delivered to the Secretary of PMI at our principal executive office at any time before it is voted and may also be revoked by signing and delivering a proxy with a later date or by attending the Annual Meeting and voting in person.

VOTING AND SOLICITATION. For each matter that may come before the Annual Meeting, each stockholder will be entitled to one vote for each share of common stock registered in the stockholder’s name as of the close of business on the Record Date. The Chairman of the Board will announce the opening and closing of the polls during the Annual Meeting. Proxies must be received prior to the closing of the polls in order to be counted. Instead of submitting a signed proxy card, stockholders of record may submit their proxies by telephone using the control number and instructions accompanying the proxy card. Telephonic voting may not be available to stockholders who hold their shares through a broker, nominee, fiduciary or other custodian. The enclosed proxy is solicited by our Board of Directors. If the proxy is properly executed and returned, and choices are specified, the shares represented thereby will be voted at the Annual Meeting in accordance with those instructions. If no choices are specified, a properly executed proxy will be voted as follows:

Any other business that may properly come before the meeting will be voted at the discretion of the proxy holders.

A quorum is necessary to conduct the business of the Annual Meeting. The presence of the holders of a majority of the outstanding shares of common stock entitled to vote at the Annual Meeting, present in person or represented by proxy, is necessary to constitute a quorum. Votes cast by proxy or in person at the Annual Meeting will be counted by the persons appointed by PMI to act as election inspectors for the Annual Meeting. Withhold votes, abstentions and “broker non-votes” are counted as present and entitled to vote for purposes of determining a quorum. A “broker non-vote” occurs when a broker holding shares for a beneficial owner does not vote on a particular proposal because the broker does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner.

If you are a beneficial stockholder and your broker holds your shares in its name, under the current rules of the New York Stock Exchange and the Nasdaq Stock Market, the broker is generally permitted to vote your shares

on the election of directors and the ratification of Ernst & Young LLP as our independent registered public accounting firm, even if the broker does not receive voting instructions from you.

A plurality of the votes cast is required for the election of directors (Item 1). This means that the nine nominees who receive the most votes will be elected to the nine open directorships even if they get less than a majority of the votes cast. Abstentions and broker non-votes will have no effect on the outcome of the vote on this Item. Under The PMI Group, Inc. Board of Directors Guidelines on Significant Corporate Governance Issues (“Governance Guidelines”), if a nominee receives a greater number of withhold votes than affirmative votes, the nominee must submit his or her resignation for the Board’s consideration promptly following certification of the shareholder vote. The Governance and Nominating Committee will promptly consider the resignation submitted and recommend to the Board whether to accept it, conditionally accept it, or reject it, considering all relevant factors. The Board will act on the Governance and Nominating Committee’s recommendation no later than 90 days following the date of the Annual Meeting, followed by prompt public disclosure of the decision.

The affirmative vote of the majority of shares present in person or represented by proxy and entitled to vote on the matter is required for the ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm (Item 2). Abstentions will effectively count as a vote against ratification of the appointment of Ernst & Young LLP as independent registered public accounting firm. Broker non-votes will have no effect on the outcome of the vote on this matter.

The affirmative vote of the majority of shares present in person or represented by proxy and entitled to vote on the matter is required for approval of the PMI Amended and Restated Equity Incentive Plan (Item 3). Abstentions will effectively count as a vote against the proposal. Broker non-votes will have no effect on the outcome of the vote on this matter; however, brokers will not be able to vote on the proposal absent instructions from their beneficial holders.

If you are a participant in our Savings and Profit Sharing Plan or Alternate 401(k) Plan (together, the “401(k) Plans”), you will receive a separate proxy that applies to the shares you own through the 401(k) Plans. Your proxy will serve as a voting instruction for the 401(k) Plans’ trustees. If no choices are specified, a properly executed proxy will be voted by the 401(k) Plans’ Fiduciary Committee. If you own shares through the 401(k) Plans and you do not vote, the 401(k) Plans’ Fiduciary Committee will vote those shares.

The cost of this solicitation will be borne by PMI. MacKenzie Partners, Inc. has been retained by PMI to assist in the solicitation of proxies at an estimated fee of $6,000 plus reimbursement of reasonable expenses. In addition, PMI may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in mailing solicitation material to such beneficial owners. Proxies may also be solicited by certain of our directors, officers and employees, but we will not additionally compensate our directors, officers or other employees for these services. Solicitation may be conducted in person, by telephone, by email, by facsimile or by any other means of communication.

Our bylaws, and proxy rules promulgated by the Securities and Exchange Commission (“SEC”), provide that stockholders may submit nominations for directors at an annual meeting if they comply with certain requirements. Any nomination for director submitted by a stockholder must have been received by the Secretary of PMI at our principal executive offices not later than the close of business on the 90^th day, nor earlier than the

close of business on the 120^th day, prior to the first anniversary of the preceding year’s annual meeting to be considered timely. PMI has not received any nominations for directors from stockholders. Stockholders were also entitled to present proposals for inclusion in our Proxy Statement and form of proxy for the Annual Meeting by writing to the Secretary of PMI by December 9, 2008. Stockholders who wished to submit proposals or director nominations not included in the Proxy Statement and proxy must have done so between January 15, 2009 and February 14, 2009. PMI did not receive any proposals from stockholders for the Annual Meeting.

Our Annual Report to Stockholders for the year ended December 31, 2008 has been mailed with this document. Stockholders should refer to the Annual Report to Stockholders for financial and other information about our activities. However, the Annual Report to Stockholders is not incorporated by reference into this Proxy Statement and is not to be deemed a part of this Proxy Statement.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on May 21, 2009

A complete copy of this Proxy Statement and our Annual Report to Stockholders for the year ended December 31, 2008 are also available by visiting our investor relations proxy materials webpage at www.pmi-us/proxy. In addition, they are available to stockholders free of charge by writing to the Investor Relations Department of PMI at PMI Plaza, 3003 Oak Road, Walnut Creek, California 94597.

Nine directors are to be elected at the Annual Meeting. Directors Steven L. Scheid and Mariann Byerwalter resigned from the Board in February and March 2009, respectively. The Board subsequently reduced the size of the Board to nine directors. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the nine nominees named below. All of the nominees are presently directors of the Company. Each person elected will serve a one-year term as a director until the next annual meeting and until a successor is duly elected and qualified or until his or her earlier death, resignation or removal. Each nominee has consented to being named in this Proxy Statement and has indicated a willingness to serve if elected. However, if at the Annual Meeting any of the nominees named below is not available to serve as a director (an event that the Board of Directors does not anticipate), the proxies will be voted for the election of such other person or persons as the proxy holders may designate, unless the Board of Directors, in its discretion, reduces the number of directors.

THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE NOMINEES NAMED BELOW, AND, UNLESS A STOCKHOLDER GIVES INSTRUCTIONS ON THE PROXY CARD TO THE CONTRARY, THE PROXY WILL BE VOTED FOR THE NOMINEES.

NOMINEES FOR DIRECTOR OF THE PMI GROUP. Set forth below is certain information for each nominee, based on data furnished by them.

CARMINE GUERRO, 67, has been one of our directors since August 2002. Mr. Guerro was Chairman of Grosvenor Americas Limited, a private property development and investment company, from March 2002 until August 2007. Prior thereto, he was a partner at PricewaterhouseCoopers LLP for 26 years, holding a variety of positions including Vice Chairman of Client Service and Managing Partner of the Western Region. He was also a member of the Executive Committee of the firm. Mr. Guerro’s past civic board affiliations include President of the International Diplomacy Council of the Bay Area, Chairman of the University of California at Berkeley Business School Professional Accounting Program and a member of the board of directors for the Bay Area Council. He is Chair of our Audit Committee and a member of our Governance and Nominating Committee.

WAYNE E. HEDIEN, 75, has been one of our directors since January 1995 and was a director of PMI Mortgage Insurance Co. (“PMI MIC”) from February 1983 through May 1990 and from April 1992 through January 1995.

Mr. Hedien was the Chairman of the Board of Allstate Insurance Company from July 1989 through December 1994 and was elected to the same position with The Allstate Corporation in March 1993 in preparation for The Allstate Corporation’s initial public offering. He held a variety of senior executive positions with Allstate Insurance Company and its affiliates prior to his retirement in December 1994. He is also a Life Trustee of the Field Museum of Chicago and on the Dean’s Advisory Board of the Kellogg School of Management. He is Chair of our Governance and Nominating Committee and a member of our Investment and Finance Committee.

LOUIS G. LOWER II, 63, has been one of our directors since May 2001. Mr. Lower has been President, Chief Executive Officer and a director of Horace Mann Educators Corporation, a multiline insurance corporation focusing on the retirement planning and personal insurance needs of the educational community, since February 2000. Before joining Horace Mann, Mr. Lower served as Chairman and Chief Executive Officer of Allstate Life Insurance Company and was a director of Allstate Insurance Company, Allstate Life Insurance Company and Allstate Federal Savings Bank. Prior to being elected Chairman of Allstate Life Insurance Company in 1999, Mr. Lower served as that company’s President and Chief Executive Officer from 1990 and as Senior Vice President, Treasurer and Chief Investment Officer of both Allstate Life Insurance Company and Allstate Insurance Company from 1986 to 1989. Mr. Lower joined Allstate Insurance Company in 1976 and held a number of positions prior to becoming Executive Vice President in 1989. Mr. Lower also serves on the boards of directors of the National Education Association Foundation for the Improvement of Education, the Abraham Lincoln Presidential Library and Museum, Memorial Health System and the Illinois Life Insurance Council. Mr. Lower is also past Chairman of Life Office Management Association and has served on the boards of the American Council of Life Insurers, Life Insurance Marketing and Research Association, Inc., Life Underwriter Training Counsel, National Association of Variable Annuities and the American College. He is Chair of our Compensation Committee and a member of our Governance and Nominating Committee.

RAYMOND L. OCAMPO JR., 56, has been one of our directors since May 1999. He has served as President and Chief Executive Officer of Samurai Surfer LLC, a private consulting and investment company, since April 2004. Mr. Ocampo co-founded the Berkeley Center for Law & Technology and served as Executive Director from August 1997 through December 1999. Mr. Ocampo was Senior Vice President, General Counsel and Secretary at Oracle Corporation from September 1990 until his retirement in November 1996. Mr. Ocampo joined Oracle in July 1986 and held various senior and executive positions with Oracle until retirement. Mr. Ocampo is a member of the board of directors of Keynote Systems, Inc. He is a member of our Compensation Committee.

JOHN D. ROACH, 65, has been one of our directors since May 1997. Mr. Roach has served as the Chairman and Chief Executive Officer of Stonegate International, a private investment and advisory services firm, since 2001. From 2002 until 2006, he also served as Chairman of Unidare U.S., the North American subsidiary of Unidare plc, a public Irish company and a leading wholesaler of maintenance, repair and operation supplies and products to the welding, safety and industrial markets. He was also the Founder of Builders FirstSource, and served as its Chairman, President and Chief Executive Officer from October 1997 to September 2001. Prior to founding Builders FirstSource, he was the Chairman, President and Chief Executive Officer of Fibreboard Corporation. From 1987 to 1991, Mr. Roach held senior positions with Manville Corporation, having served as Executive Vice President—Operations, President of Building Products Operations and Chief Financial Officer. Prior to joining Manville, Mr. Roach was a strategy consultant and senior officer of Braxton Associates, Booz Allen Hamilton and The Boston Consulting Group. Mr. Roach currently serves on the boards of URS Corporation and VeriSign, Inc. Mr. Roach has previously served on the boards of directors of Fibreboard, Magma Power, Thompson PBE, the American Stock Exchange, NCI Building Systems, Washington Group International, Material Sciences and Kaiser Aluminum Corporation. He is a member of our Audit Committee and Investment and Finance Committee.

L. STEPHEN SMITH, 59, has served as Chairman of the Board of The PMI Group, Inc. since May 2007, and has been one of our directors since February 2002. He has been the Chief Executive Officer since June 1, 2006, and President and Chief Operating Officer since September 1998, of PMI. He has served as Chief Executive Officer of PMI MIC since January 2004. He was President and Chief Operating Officer of PMI MIC from

September 1998 to June 2006. He was elected Executive Vice President of Marketing and Field Operations of PMI MIC in May 1994 and elected to the same positions with PMI in January 1995, serving in such capacities until September 1998. Prior thereto, he held various executive positions with the Company. Mr. Smith joined PMI in 1979. He has served as President of the Mortgage Insurance Companies of America and as a member of the board of directors of National Association of Hispanic Real Estate Professionals.

JOSÉ H. VILLARREAL, 55, has been one of our directors since May 2005. He currently serves as a consultant to the law firm, Akin Gump Strauss Hauer & Feld LLP, and from July 1994 to January 2009 served as a partner in the firm. He served on the board of directors of Wal-Mart Stores, Inc., from 1998 to 2006, and currently serves on the boards of First Solar, Inc. and Union Pacific Corporation. Mr. Villarreal also serves on the boards of the New America Alliance, an organization of leading Latino business leaders dedicated to philanthropy, and the Center for American Progress, a Washington, D.C.-based research institute. He is a member of our Compensation Committee and Chair of our Investment and Finance Committee.

MARY LEE WIDENER, 70, has been one of our directors since January 1995 and was a director of PMI MIC from October 1993 through January 1995. Ms. Widener has been President, Chief Executive Officer and a member of the board of directors of Neighborhood Housing Services of America since May 1974. Prior to the end of two four-year terms on December 31, 2003, Ms. Widener served as Chairman of the board of directors of the Federal Home Loan Bank of San Francisco. She is a member of the boards of directors of the S. H. Cowell Foundation, Operation Hope, The First American Corporation and Social Compact. She is a member of our Audit Committee and our Investment and Finance Committee.

RONALD H. ZECH, 65, has been one of our directors since May 1998. He retired in 2005 as Chairman and Chief Executive Officer of GATX Corporation, a leading provider of lease financing and related services to customers operating rail, marine and other targeted assets. Mr. Zech was elected Chairman of GATX Corporation in April 1996, Chief Executive Officer in January 1996, and President in July 1994. Mr. Zech is also on the board of directors of McGrath RentCorp. He is Vice Chair of our Compensation Committee and Vice Chair of our Governance and Nominating Committee.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE ELECTION OF THE ABOVE NOMINEES AS DIRECTORS OF PMI.

CORPORATE GOVERNANCE GUIDELINES. Our corporate governance materials, including the Governance Guidelines, our Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers and charters of the Audit Committee, Compensation Committee and Governance and Nominating Committee, are published in the corporate governance section of our website under “investor relations” at www.pmi-us.com, and are available in print to any stockholder upon written request to the Secretary of the Company at PMI Plaza, 3003 Oak Road, Walnut Creek, CA 94597. Our Board and Board committees regularly review corporate governance developments and modify the Governance Guidelines, charters and practices as warranted. Any modifications are reflected on our website. Information contained on our website is not deemed incorporated into this Proxy Statement.

DIRECTOR INDEPENDENCE. For a director to be considered independent, the Board must determine that the director does not have any direct or indirect material relationship with PMI. The Board has established guidelines to assist it in determining director independence which are consistent with the independence requirements in the listing standards of the New York Stock Exchange (“NYSE”), on which the common stock of PMI is listed. The independence guidelines, which are set forth in the Governance Guidelines, include categorical standards of independence based upon what the Board considers to be immaterial relationships or transactions. Applying these guidelines, the Board determined that all eight current non-executive directors are independent: Carmine Guerro, Wayne E. Hedien, Louis G. Lower II, Raymond L. Ocampo Jr., John D. Roach, José H. Villarreal, Mary Lee Widener and Ronald Zech. Accordingly, the majority of the members of the Board of

Directors are independent. All members of the Audit, Compensation, Governance and Nominating, and Investment and Finance Committees of the Board are independent directors. Members of the Audit Committee satisfy additional SEC independence requirements.

In the course of the Board’s determinations regarding the independence of non-management directors, the Board considered that PMI, in the ordinary course of business, provides mortgage insurance coverage and receives mortgage insurance premiums with respect to residential mortgage loans originated or purchased by a non-profit organization for which Ms. Widener is President and Chief Executive Officer. The Board also considered several donations that The PMI Foundation made in 2008 to other non-profit organizations for which Ms. Widener and Mr. Ocampo serve as directors or are otherwise affiliated. All of these relationships were immaterial under the Board’s guidelines and categorical standards of independence and, accordingly, the Board determined that none of these relationships impaired the independence of the applicable director.

CODES OF ETHICS. All directors, officers and employees of PMI must act ethically at all times and in accordance with PMI’s Code of Business Conduct and Ethics. Our Code of Ethics for Senior Financial Officers contains additional obligations to provide full, fair, accurate, timely and understandable disclosure of financial information in our periodic SEC filings. These Codes and other related documents are published in the corporate governance section of our website under “investor relations” at www.pmi-us.com. These documents and the annual CEO certification regarding compliance with listing requirements that is submitted to the NYSE are available in print to any stockholder upon written request to the Secretary of the Company.

BOARD OF DIRECTORS. The Board of Directors held nine meetings during 2008. Pursuant to the Governance Guidelines, directors are expected to attend our annual stockholders’ meeting, Board meetings and meetings of committees on which they serve, and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. The Board of Directors currently has an Audit Committee, a Compensation Committee, a Governance and Nominating Committee and an Investment and Finance Committee. During 2008, each incumbent director attended at least 75% of the Board meetings and meetings of committees of which he or she is a member. All of the incumbent directors attended the 2008 annual meeting of stockholders. Non-employee directors meet in executive session without any management directors or employees present at each regularly scheduled Board meeting. The Chair of the Governance and Nominating Committee is the presiding director at these meetings.

AUDIT COMMITTEE. Our Board of Directors has a standing Audit Committee established in accordance with the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which defines such a committee as one with the purpose of overseeing the accounting and financial reporting processes, and audits of the financial statements, of the issuer. The Audit Committee consists of Carmine Guerro, Chair, John D. Roach and Mary Lee Widener. The Audit Committee held nine meetings in 2008. Information regarding the functions performed by the Audit Committee is set forth in the Audit Committee Report, included in this Proxy Statement. The Board of Directors has determined that Messrs. Guerro and Roach are “audit committee financial experts” within the meaning of applicable SEC rules. The Audit Committee meets in executive session at regularly scheduled meetings.

COMPENSATION COMMITTEE. The Compensation Committee consists of Louis G. Lower II, Chair, Ronald H. Zech, Vice-Chair, Raymond L. Ocampo Jr. and José H. Villarreal. Each Compensation Committee member is an outside director under Section 162(m) of the Internal Revenue Code (the “Code”) and a non-employee director under Rule 16b-3 under the Exchange Act. The Compensation Committee held six meetings in 2008 and regularly met in executive session. The Compensation Committee oversees PMI’s compensation and benefit programs, and sets the goals and establishes the elements of the executive compensation program, including setting base salary levels, annual incentive awards and long-term incentives. The Compensation Committee reviews and approves all compensation actions relating to the Chief Executive Officer (“CEO”), the other Named Executive Officers (“NEOs”), as defined below, and other members of senior management who either: (i) are subject to the reporting requirements of Section 16 of the Exchange Act

(“Section 16 Officers”); or (ii) have base salaries of at least $260,000 and have Company-wide authority. The Committee also approves equity awards to the Named Executive Officers and other Section 16 Officers. The Committee has authority, on behalf of the Board, to administer and amend our Bonus Incentive Plan, equity plans, officer deferred compensation plans, the retirement plans, Supplemental Employee Retirement Plan (the “SERP”) and other benefit programs. The Compensation Committee’s Report on executive compensation is included in this Proxy Statement following the Compensation Discussion and Analysis.

Professional Advisors and CEO Recommendations. The Compensation Committee periodically retains independent advisors as it deems necessary in carrying out its responsibilities. The Compensation Committee has hired Hewitt Associates, a professional compensation consulting firm (the “Compensation Consultant”), to provide recommendations and review executive pay from time to time. The Compensation Consultant has served the Committee for several years and was chosen by the Committee in light of its excellent reputation for rigorous analysis and independent advice, as well as its demonstrated subject-matter expertise. The Compensation Consultant reports directly to the Committee, attends Committee meetings and serves at the pleasure of the Committee. The Compensation Consultant was not engaged by the PMI management for any assignments in 2008. The Committee is authorized to hire other advisers as it sees fit. The Committee receives and takes into account the recommendations of the CEO regarding the performance and pay of his direct reports—the other executive officers. In setting the CEO’s compensation, the Committee discusses with the CEO its general compensation philosophy and the Company’s and the CEO’s performance and goals. The Board of Directors also evaluates the performance of the CEO annually against pre-established goals and priorities, and the Committee takes this assessment into account when setting the CEO’s compensation. The Committee does not discuss the CEO’s compensation with other members of management.

Committee Procedures. The Committee receives tally sheets of total compensation for the NEOs at its regular meetings. The Committee also regularly receives information and advice about competitive pay practices and other compensation and governance-related compensation issues. The Committee reviews the entire compensation program for each executive, including benefits, when it makes compensation decisions. On an annual basis, the Committee reviews the performance and compensation of each officer and awards incentive pay as applicable, makes equity awards, and sets the base pay, bonus and long-term incentive percentages, and incentive measures for the coming year.

Delegation of Authority. Pursuant to the Committee’s charter, the Committee may delegate authority to approve executive compensation to subcommittees of one or more Committee members when desired and appropriate. While the Committee has delegated certain authority to administer the day-to-day ministerial operations of PMI’s equity and other compensation plans to management, the Committee has not delegated the authority to management to establish or amend the executive compensation programs or pay awards to executive officers.

GOVERNANCE AND NOMINATING COMMITTEE. The Governance and Nominating Committee consists of Wayne E. Hedien, Chair, Ronald H. Zech, Vice Chair, Carmine Guerro and Louis G. Lower II. The Governance and Nominating Committee held four formal meetings in 2008. The committee members (as well as other Board members) also confer frequently with management between formal meetings. The committee develops and monitors our corporate governance practices and procedures and monitors the responsibilities of Board members, in consultation with the Chairman of the Board. It also makes periodic reports to the Board of Directors regarding our governance practices. The Governance and Nominating Committee assists the Board of Directors in its assessment of the Chief Executive Officer, and assists the Chairman in the annual self-assessment process for the Board of Directors. It advises the Board with respect to the size and composition of the Board and recommends prospective directors to assist in creating a balance of knowledge, experience and capability on the Board. The committee also makes recommendations to the Board regarding director compensation and reviews potential related party transactions. In addition, the committee is responsible for making recommendations to the Board regarding the amount and timing of dividends, and, unless otherwise determined by the Board, reviewing and making recommendations regarding the Company’s capital structure and credit risk oversight and control.

The Governance and Nominating Committee will consider all stockholder recommendations for candidates for the Board. Such recommendations should be sent to the Governance and Nominating Committee, c/o Corporate Secretary, The PMI Group, Inc., PMI Plaza, 3003 Oak Road, Walnut Creek, California 94597, should include the candidate’s qualifications and other relevant biographical information, and should provide confirmation of the candidate’s consent to serve as a director. In addition to considering candidates suggested by stockholders, the Governance and Nominating Committee considers potential candidates recommended by current directors and others. The Governance and Nominating Committee screens all potential candidates in the same manner regardless of the source of the recommendation. The Governance and Nominating Committee determines whether the candidate meets minimum qualifications and possesses specific qualities and skills for directors, and whether requesting additional information or an interview is appropriate. The Governance and Nominating Committee presents its recommended nominees to the Board.

The Governance and Nominating Committee’s minimum qualifications and specific qualities and skills required for directors, and additional information on its procedures, are set forth in our Governance Guidelines. The minimum qualifications generally include the highest standards of personal character, the intent and ability to act in the best interests of stockholders, leadership experience, sound judgment, sufficient availability to serve and the absence of conflicts of interest. The Governance and Nominating Committee did not engage a third party consultant to identify potential candidates in 2008 or to date in 2009.

INVESTMENT AND FINANCE COMMITTEE. The Investment and Finance Committee consists of José H. Villarreal, Chair, Wayne E. Hedien, John D. Roach and Mary Lee Widener. The Investment and Finance Committee held three meetings in 2008. The Investment and Finance Committee oversees our investment portfolio and reviews our investment policies, insurance program and other financial matters. The Investment and Finance Committee also provides oversight of the work of the pension plan administrative committee.

COMMUNICATING WITH THE BOARD OF DIRECTORS. The Board of Directors welcomes communications from stockholders and other interested parties. Third parties may communicate with the Board, its committees, or any individual director by writing to the director(s) at the address of our headquarters, in care of our General Counsel, calling (866) 525-5213, or sending an email to directors@pmigroup.com. All such communications will be received by the General Counsel. The General Counsel will review the communications and, if appropriate, will forward them to the appropriate committee or director as soon as possible. Communications that are clearly irrelevant to the duties and responsibilities of the Board, such as the following, are not reported to the Board: spam, junk mail and mass mailings, resumés or other forms of job inquiries, opinion surveys and polls, and business solicitations or advertisements. Complaints relating to PMI’s accounting, internal accounting controls or auditing matters will be reviewed under Audit Committee direction. Other concerns will be referred to the presiding director of the PMI Board when so addressed, or to the appropriate committee of the Board of Directors.

Directors who are employees of PMI or its subsidiaries do not receive additional compensation for their services as directors. Annual cash retainer fees for non-employee directors during 2008 are set forth in the following table. Annual retainer fees are paid in quarterly installments.

Non-management members of the Financial Guaranty Oversight Committee, which was disbanded in February 2008 and the responsibilities of which were assumed by the full Board, received a quarterly retainer of $17,500.

Non-employee directors also receive quarterly, non-discretionary stock unit grants pursuant to the PMI Amended and Restated Equity Incentive Plan (“Equity Plan”). In 2008, the quarterly grants consisted of that number of stock units which, when multiplied by the fair market value (determined by the closing market price) of a share of our common stock on the date of the award, equaled $25,000. Pursuant to the terms of the Equity Plan, the grants are made the first business day on or after the fifteenth day of each January, April, July and October. The stock units, which accrue dividends expressed in stock units when dividends are paid on PMI common stock, vest upon the earlier of cessation of Board service due to retirement, death, disability, resignation or non-reelection to the Board, or the fifth anniversary of the award date. Upon vesting, the units are paid in whole shares of common stock, on the basis of one share for each stock unit, with the balance, if any, in cash. In addition, in order to encourage long-term ownership of PMI common stock, a non-employee director may elect to defer the payout of his or her stock units in accordance with the terms of the Equity Plan and the rules established by the Plan’s administrator.

Changes to the Directors Compensation Program for 2009. The following changes were made to the directors’ compensation program beginning in January 2009. The retainer for Audit Committee members was raised to $15,000 and an annual retainer of $10,000 was approved for each member of the Compensation, Governance and Nominating, and Investment and Finance Committees. The Equity Plan was amended to provide that the quarterly, non-discretionary stock unit grants to non-employee directors would each have a market value of $4,000, with a limit of 2,500 stock units per director per quarter. Also, the Board adopted the Non-Employee Director Phantom Stock Plan, pursuant to which quarterly grants of phantom stock are automatically issued to each non-employee director on the same days that the above stock units are issued. Each grant consists of that number of shares of phantom stock which, when multiplied by the fair market value of a share of our common stock on the date of the award, equals $8,500, plus the dollar value of any shortfall below $4,000 in the value of stock units granted on that date due to the 2,500-unit cap described above. The phantom stock will vest upon the earlier of five years from the award date or cessation of Board service for any reason. On any date, each share of phantom stock has a value equal to the fair market value of our common stock on that date. The phantom stock, which accrues dividend equivalents when dividends are paid on PMI common stock, is payable in a single, lump sum cash payment upon vesting.

Under PMI’s 2005 Directors’ Deferred Compensation Plan (which also refers to its predecessor plan) (“DDCP”), each non-employee director may defer receipt of his or her retainer fees. The minimum permitted deferral is $5,000. All amounts deferred are deemed to be invested in phantom shares of our common stock. On any date, the value of each share of phantom stock will equal the fair market value of a share of our common stock, including reinvestment of any dividends. The deferred amounts generally are payable at the time elected by the director, subject to certain exceptions, in accordance with the terms of the DDCP. The deferred amounts generally are payable in the form of a lump sum cash payment or a fixed number of annual cash installment payments (not to exceed ten) as elected by the director.

All directors have entered into indemnification agreements with the Company pursuant to which the Company is obligated to provide defense and indemnification, including advancement of expenses, in the event that certain claims are asserted against the covered individuals. The Company also provides directors’ and officers’ liability insurance for its directors and officers. Directors are also reimbursed for reasonable expenses relating to their attendance at Board and committee meetings.

Dividends are accrued in-kind on the stock units. Each director listed above held 43,860 directors’ stock units at December 31, 2008, with the exception of Mr. Villarreal who was elected in May 2005 and held 41,621 units at year end.

The following table sets forth, as of March 16, 2009, unless otherwise noted, certain stock ownership information regarding: (a) all stockholders known by PMI to be the beneficial owners of five percent or more of our common stock, (b) each nominee and current director of PMI, (c) each Named Executive Officer listed in the Summary Compensation Table in this Proxy Statement, and (d) all directors, director nominees and executive officers of PMI as a group. For purposes of this table, a beneficial owner is generally any person or entity that directly, indirectly or through a family relationship has or shares the power to vote or direct the vote of the shares, has the power to trade or dispose of the shares, or has the right to acquire the ownership of any shares at any time within 60 days of March 16, 2009 through the exercise of any option, warrant, right or convertible security.

Section 16(a) of the Exchange Act and regulations thereunder require our directors, executive officers and persons who own ten percent or more of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of the common stock and to furnish PMI with copies of all Section 16(a) forms they file.

Based solely upon a review of the copies of these Forms 3, 4 and 5 reports received by PMI, and certain written representations received from our directors and executive officers, PMI believes that all reports required to be filed under Section 16(a) were filed on a timely basis in 2008, except that Old Republic International Corporation reported on a Form 5 filed January 23, 2009, a sale on October 29, 2008 of 3,047,044 shares of PMI common stock.

Below we discuss our compensation program for the executives listed in the Summary Compensation Table (the “Named Executive Officers” or “NEOs”). We explain below the philosophy, goals and elements of our executive compensation program, and the decisions made for 2008 that are reflected in the executive compensation tables and accompanying narratives. We also discuss changes to the program for 2009.

We determined the Named Executive Officers in accordance with SEC rules and include our principal executive officer and principal financial officer, our three other most highly compensated executive officers in 2008, and two former executives who would have been included in the group of three other most highly compensated executives but for their retirement in 2008. For 2008, our Named Executive Officers were:

The Compensation Committee of the Board of Directors (the “Committee”) is responsible for setting the compensation of our executive officers. The Committee’s particular responsibilities and processes are described under Corporate Governance—Compensation Committee, above. In addition to its long-standing philosophy and objectives, the Committee’s decisions in 2008 and 2009 were shaped by two central factors:

In response to these factors, the Committee designed 2008 and 2009 executive compensation programs that:

The Committee approved cost-of-living executive salary increases in February 2008 of approximately 3.9% and did not increase any NEO’s salary in February 2009. In 2008, the Committee significantly changed the compensation peer group of the Company for benchmarking future executive compensation, taking into account PMI’s renewed focus on its core business and its reduced market capitalization. Also in 2008, the Committee granted equity to the NEOs representing approximately one-third of the equity grant values received in the prior year. Finally, although bonuses were earned for the 2008 performance period based upon achievement of certain performance goals, Mr. Smith recommended that he not receive any bonus incentive award, and the Committee accepted his recommendation. The Committee deferred the payment of one-half of the bonuses of the other NEOs until July 1, 2010. As a result of these decisions, and in recognition of PMI’s financial results and financial condition, our CEO’s total compensation, as reflected in the Summary Compensation Table, was reduced in 2008.

While continuing its practice of placing a significant component of compensation at risk, in 2008 and 2009 the Committee designed short- and long-term incentive plans to motivate management to achieve PMI’s key initiatives: the enhancement of PMI’s capital and liquidity and a focus on its core U.S. mortgage insurance operations. For example, incentive criteria set by the Committee for 2008 included capital management, Fannie Mae and Freddie Mac (“GSE”) eligibility, incurred losses and the quality of new insurance written. Key performance metrics set in 2009 under short- and long-term incentive plans include capital and liquidity management, U.S. mortgage insurance incurred losses, expense management, quality of new insurance written, and return to profitability. After consultation with PMI’s Chief Risk Officer in executive session, the Committee determined that these key metrics do not encourage PMI’s executives to take unnecessary or excessive risks that would threaten the value of PMI.

The Committee will continue to review its executive compensation program in 2009 in light of the serious challenges facing the housing and mortgage markets, and PMI.

What is PMI’s Compensation Philosophy? What are the Objectives of Our Executive Compensation Program?

COMPENSATION PHILOSOPHY. The Committee’s guiding philosophy is to provide executive compensation that attracts, motivates and retains highly talented executives who are critical to the creation of long-term shareholder value. The Committee believes that a compensation program should not only be attractive enough to induce quality leaders to join and stay with the Company, but should also reward the kind of efforts and results that will help the Company achieve its goals. Pay decisions are made at PMI in the context and with the realization that pay is only one reason that someone stays with or joins an organization and works productively and creatively. The other reasons include having one’s talents utilized to the fullest, having satisfying job challenges and being in the company of talented and collaborative people who share common values.

COMPENSATION OBJECTIVES. Specifically, the objectives of our executive compensation program are to:

The Committee’s decisions with respect to both compensation program design and particular compensation awards are made in light of the above-described philosophy and goals. The Committee awards compensation to the executive officers in a manner, and at a level, that it believes will further one or more of the three significant compensation objectives described above. The Committee regularly reviews the Company’s compensation program to ensure that each aspect of the program is, in fact, continuing to advance the Company’s compensation objectives. These objectives are described further below.

In order to recruit and retain talented executives, the Committee believes that our compensation practices must be competitive with those of other employers with which PMI competes for talent. Accordingly, as part of its compensation decision-making process, the Committee reviews market and pay level data relating to companies of similar size to PMI in a broad range of industries and, at least annually, comparative compensation information derived from a peer group of companies (the “Compensation Peer Group”). PMI’s competitors for executive talent are not necessarily the same companies that would be included in an industry index established to compare stockholder returns because PMI requires skills and perspectives from a broader range of backgrounds. In addition, there are few companies that are pure peers of PMI with respect to both business mix and size. In selecting members of the Compensation Peer Group, the Committee consults with Hewitt Associates, the Committee’s Compensation Consultant, and reviews numerous factors such as the potential peers’ business mix, market capitalization, revenue levels, net income and executive positions.

The Committee reviews the Compensation Peer Group annually to ensure that its component companies are suitable. The Compensation Peer Group selected each year typically includes publicly reporting, diversified insurance and financial services companies similar in scope and size, and/or with a similar strategic orientation, to PMI. The Compensation Peer Group for 2007 and 2008 encompassed the following companies:

The Committee has selected a revised Peer Group for 2009, taking into account, among the above-described factors, PMI’s focus on its core business and its reduced market capitalization. The revised Compensation Peer Group is comprised of:

PMI pays for, and rewards, performance. At the executive level, this means that nearly all aspects of our compensation program are designed in whole or in part to reward individual excellence and achievement that has

led to the achievement of corporate goals. Accordingly, the Committee’s compensation decisions are driven by both PMI’s performance and the Committee’s assessment of each executive officer’s performance. Stellar individual performance that has not resulted in collective achievement is not the primary goal and, therefore, our executive compensation program metrics are not based primarily on individual achievement. Rather, a significant portion of executive compensation is contingent upon the achievement of PMI’s short- and long-term financial and other corporate objectives, including the creation of shareholder value.

The Committee also has the authority to take into account the performance of each executive, either in considering reduction of awards under our shareholder-approved Bonus Incentive Plan (“Bonus Plan”), a plan qualified under Section 162(m), or in making discretionary awards outside the Bonus Plan. In considering individual performance, the Committee seeks to balance the important goal of collective achievement with the need, particularly in periods of high market and economic volatility, to reward individual excellence in order to attract and retain superlative employees. Key factors affecting the Committee’s individual assessments include the nature and scope of the executive officer’s responsibilities, his or her level of experience, effectiveness in leading corporate initiatives and contributing to achievement of corporate goals, and success in creating a culture of integrity and compliance. In assessing the performance of individual executives other than the Chief Executive Officer, the Committee receives and evaluates reports on the executives provided by the Chief Executive Officer, as well as other sources of information. In evaluating the CEO’s performance, the Committee takes into account the annual assessment of the performance of the Chief Executive Officer that is provided by the Governance and Nominating Committee, as well as other factors deemed relevant by the Committee.

PMI’s compensation program is designed to motivate executives to achieve excellent results in a manner that builds long-term shareholder value. The Committee includes a significant equity component in total compensation to align executives with PMI’s long-term financial goals and the interests of our stockholders. The Committee also believes that the multi-year vesting of stock-based awards furthers the goal of executive retention.

What are the Elements of Our Executive Compensation Program? What Actions Did the Committee Take with Respect to the Program for 2008 and 2009?

The objectives described above are supported by the three major elements of our compensation program: base salaries, annual performance incentive opportunities and the potential for long-term rewards. The Committee selected these three pay elements described below, because it believes that they maximize the Company’s ability to retain, motivate and attract the talent that can lead the Company. The Committee believes that the mix of at-risk and non-at-risk pay, and the performance metrics chosen for the annual and long-term incentive plans, do not reward executives for taking unnecessary or excessive risks that threaten the value of the Company. The Company also provides health, life and disability benefits, retirement benefits and savings programs, change of control and indemnification agreements, and certain perquisites.

In 2008, the Committee considered the appropriateness of each executive officer’s entire package when evaluating each element of compensation. At each regularly scheduled Committee meeting, the Committee receives tally sheets of each executive officer’s compensation. The tally sheets include:

The Committee also takes into account internal parity among the NEOs, including the ratio of the total pay of the CEO to that of the next highest paid NEO. In consultation with the Compensation Consultant, the Committee has determined that the executive pay differentials at PMI are both appropriate based upon the responsibilities of the positions and modest in comparison with market practices. The amounts and types of compensation paid or awarded for 2008 are set forth below in the compensation tables and accompanying narratives.

BASE SALARIES. The Committee believes that salaries are a necessary part of any compensation program and that paying reasonable salaries is critical to attracting and retaining highly qualified executives.

2008 Salaries. In February 2008, the Committee approved salary increases of approximately 3.9% for each of the NEOs for 2008 as a cost-of-living adjustment, with the exception of Ms. Berkowitz, for whom the Committee approved a promotional increase of approximately 11.1%. The 2008 salaries set forth in the Summary Compensation Table below were consistent with the Committee’s view that a base salary not be a large percentage of total potential compensation and should generally be targeted at approximately the median (50th percentile) level among companies included in the Compensation Peer Group. The Committee determined that the salaries for all NEOs for 2008 (a) were within the appropriate competitive range in light of each of their positions, experience, responsibilities, tenure and performance; and (b) achieved the Committee’s goals of attracting and retaining talented executives while ensuring that a significant percentage of total potential compensation remains subject to the achievement of PMI’s corporate goals and financial targets.

2009 Salaries. Based in part upon current market conditions and PMI’s 2008 financial results and current financial condition, the Committee did not increase the salary of any NEO for 2009.

PERFORMANCE-BASED ANNUAL INCENTIVES. PMI’s compensation program includes annual cash incentive award opportunities. See the description of PMI’s annual incentive program accompanying the Summary Compensation Table and the Grants of Plan-Based Awards in 2008 table below. The Committee believes that annual incentives further the goal of tying a significant portion of compensation to PMI’s achievement of its strategic annual goals and provide a means by which to reward superior performance. The Committee believes that annual incentive opportunities are necessary to attract and retain talented and experienced executives. Annual incentive awards are primarily designed to focus management on financial measures and corporate initiatives that promote shareholder value. Accordingly, awards are predominantly tied to PMI’s performance. Unless otherwise determined by the Committee, annual incentive awards to PMI’s executives are payable pursuant to the shareholder approved Bonus Plan. See Grants of Plan-Based Awards in 2008 in this Proxy Statement for more information about the Bonus Plan. The Committee also has the discretion to take into account the performance of individual executives in making awards outside, or reducing awards under, the Bonus Plan.

To assist the Committee in deciding whether, and to what extent, to pay bonuses, the Committee annually sets and reviews Company performance criteria (the “Company criteria”) and sets threshold, target and maximum opportunities for each executive. In selecting the Company criteria, the Committee considers, among other things, the strategic goals of the Company, corporate financial projections, and the likelihood of criteria to motivate management to achieve corporate financial and strategic targets. Prior to selecting the Company criteria, the Committee engages in discussions with the CEO, other executive officers, other members of the Board of Directors and the Compensation Consultant. It is the goal of the Committee to establish Company criteria that are not easily achieved and that support PMI’s key business objectives and shareholder value creation. Each year the Committee also reviews potential Company criteria to ensure that it would not encourage PMI’s executives to take unnecessary or excessive risks that could threaten the value of PMI. In 2009, the Committee met in executive session with PMI’s Chief Risk Officer to discuss the Company criteria and confirm that it would not encourage PMI’s executives to take such risks.

2008 Annual Bonus Incentive Targets, Performance Measures and Results. The target incentive opportunities for NEOs under the Bonus Plan were set as indicated below under Estimated Possible Payouts Under Non-Equity

Incentive Plan Awards in the table entitled Grants of Plan-Based Awards in 2008. The target incentive opportunities for 2008 were consistent with approximately the median (50^th percentile) of the Compensation Peer Group opportunity.

In February 2008, the Committee designed Company criteria under the Bonus Plan to motivate our executive officers to achieve key strategic financial, capital management and underwriting goals as identified at that time. While the criteria varied, the Committee considered each selected metric central to the enhancement of the Company’s financial condition. The criteria established by the Committee for review when determining whether, and to what extent, to award bonuses for 2008 to each of the NEOs, and the extent of achievement of those criteria, were:

In the aggregate, the Company achieved 55% of target Company criteria. In particular, the Company did not reach threshold levels with respect to criteria A(2), A(3), B(2) and B(3) above. With respect to criteria A (1), above, the Company achieved 73% of target. With respect to criteria B(1), the Company achieved maximum, which required successfully ensuring access to its credit facility through 2008 and raising in excess of $900 million in capital, primarily through the sales of its Australian and Asian subsidiaries. With respect to criteria B(4), the Company achieved maximum with average AURA scores (a proprietary credit risk score applied to NIW) of 175 compared to maximum criteria of 225. Based upon the Company’s achievement of 55% of target, the Committee determined that potential payments under the Bonus Plan for the 2008 performance period to Messrs. Smith, Lofe, Katkov, Porter, and Ms. Berkowitz were $685,000, $266,000, $281,000, $181,000, and $173,000, respectively.

In light of the continuing challenges facing PMI and the housing, mortgage and capital markets, Mr. Smith recommended that he not receive any bonus incentive award for 2008 and the Committee accepted Mr. Smith’s recommendation. In addition, the Committee did not award the immediate payment to the other NEOs of bonuses at 55% of target. However, based on completion of significant initiatives in 2008, including the sale of PMI’s Australian and Asian subsidiaries, and the executives’ achievement of 55% of target, the Committee determined that payment of some level of bonuses was warranted. Further, the Committee recognized the continuing

desirability of retention-based compensation programs. For these reasons, among others, the Committee awarded the non-CEO NEOs bonus incentive payments under our Bonus Plan as follows for the 2008 performance period:

27.5% of target ($133,000) to be deferred until July 1, 2010 and subject to vesting

27.5% of target ($140,500) to be deferred until July 1, 2010 and subject to vesting

27.5% of target ($90,500) to be deferred until July 1, 2010 and subject to vesting

27.5% of target ($86,500) to be deferred until July 1, 2010 and subject to vesting

For each of the above four NEOs, the deferred portion of the annual bonus incentive award will be paid on July 1, 2010, provided that the executive has been continually employed with PMI through that date or has been involuntarily terminated without cause prior to that date. Notwithstanding the deferral of one-half of the bonuses due to the vesting condition, 100% of each non-CEO NEO’s bonus (55% of target) is set forth in the column Non-Equity Incentive Plan Compensation of the Summary Compensation Table below. The Company made no discretionary bonus payments to NEOs for the 2008 performance period.

2009. In February 2009, the Committee established the following percentages of salary as bonus targets for the NEOs:

These bonus targets exceed typical bonus targets found in the new Compensation Peer Group and were set by the Committee in the context of targeting total compensation levels that would approximate the 50^th percentile of the new Compensation Peer Group. These bonus targets are intended to offset the limited long-term incentive opportunities for 2009 and to emphasize the importance of executing on near term initiatives. The entire annual bonus award is contingent on satisfying the performance objectives below, and participants in the Bonus Plan have the opportunity to earn between zero and 160% of their targeted awards depending on corporate performance.

The Committee set the bonus performance criteria for 2009 under the Bonus Plan as follows:

The Committee believes that the above criteria focus on the key issues facing the Company, the key strategic initiatives that the Company must successfully pursue in 2009 and the key metrics by which to measure such issues and initiatives.

The Committee established threshold, target and maximum numeric goals for the above criteria that the Company considers confidential. The numeric goals associated with “target” criteria are consistent with the goals contained in the Board-approved corporate operating plan for 2009. Based upon the facts that (i) the Committee has not historically paid bonus awards at the aggregate maximum level under the Bonus Plan or other past bonus plans and (ii) the criteria associated with potential maximum bonus payouts for 2009 are significantly higher than the goals contained in the operating plan, the Committee believes that the criteria are sufficiently challenging and difficult to focus executives on superior achievement of the Company’s short-term objectives.

LONG-TERM INCENTIVES. Long-term incentives are a key compensation tool intended to align management’s interests with those of PMI’s stockholders and to reward management for increasing shareholder value. PMI has historically used equity-based awards for long-term incentives because PMI believes that they align PMI’s senior management team with PMI’s stockholders. Equity incentive awards are made under PMI’s Amended and Restated Equity Incentive Plan (“Equity Plan”) and are generally awarded on an annual basis to officers and key employees of PMI and its affiliates. The Committee regularly evaluates the appropriateness of various equity incentive vehicles as well as cash incentive vehicles, and, in doing so, considers a range of factors, including dilutive effects, accounting consequences, tax effects, retention value, alignment with stockholders and the practices of the Compensation Peer Group, with which PMI competes for talent.

2008. In 2008, the Committee granted to each NEO restricted stock units and options (of approximately equal value) with an aggregate grant date fair value representing approximately one-third of the grant date fair value of the equity awards granted to such officer in 2007. The Committee selected stock options for a portion of the awards because an option holder, like a PMI shareholder, only benefits if the market price appreciates after the equity is acquired. The restricted stock units, when vested, are settled by delivery of shares of common stock on a one-for-one basis. The Committee granted restricted stock units for a portion of the awards in light of the following considerations:

The Committee’s decision to set the equity awards in 2008 at the levels shown in the Grants of Plan-Based Awards table reflects, among other things: (a) the Committee’s desire to award equity at levels sufficient to incent and retain our key employees; (b) the Committee’s recognition that prior equity grants had lost significant retention value; (c) the Committee’s desire to reduce the dilutive impact of equity awards in 2008; and (d) the Committee’s recognition of the limited number of remaining authorized shares under the Equity Plan. The Committee also took into account the compensation expense generated by various equity awards under FAS 123R.

In order to foster retention and ensure accountability for long-term value creation, the restricted stock units and the stock options granted vest in three, equal annual installments from the date of grant, provided that the holder continues in the employ of the Company. No dividends are paid or accrued on the restricted stock units. In addition, no voting rights attach to the units, but only to the shares upon conversion of the units when vested. The stock options carry a term of ten years.

2009. In February 2009, the Committee approved a new long-term incentive program (“LTIP”) for the NEOs that consists of both equity and cash long-term compensation. The Committee took this action to, among other things:

The LTIP provides for equity awards to be made under the Equity Plan and long-term cash awards to be made under the Bonus Plan. In 2009, the Committee’s LTIP awards to NEOs consisted of 50% in equity and 50% in a long-term cash opportunity. The grant-date value of PMI’s 2009 LTIP awards is below the 50th percentile of the Compensation Peer Group, and below the values PMI provided through equity awards in 2008. As previously discussed, in 2009 the Committee places greater focus on the annual incentive plan due to the need to execute on critical near term objectives. Furthermore, the Committee is mindful of avoiding excessive stockholder dilution that would occur through more aggressive equity awards. The Committee will re-evaluate the mix of incentive compensation each year based on the facts and circumstances associated with the business.

Long-Term Equity Incentives. In February 2009, the Committee selected restricted stock units and stock options as the forms of equity to grant to NEOs under the LTIP. The restricted stock units, when vested, are settled by delivery of shares of common stock on a one-for-one basis. The NEOs received the following numbers of restricted stock units and stock options on March 18, 2009, when the fair market value of our stock was $ 0.61 per share:

The restricted stock units and the stock options granted are scheduled to vest in three, equal annual installments from the date of grant, provided that the holder continues in the employ of the Company. The vesting condition provides retention value and fosters long-term value creation. No dividends are paid or accrued on the restricted stock units. In addition, no voting rights attach to the units, but only to the shares upon conversion of the units when vested. The stock options carry a term of ten years.

The levels of equity granted reflect the Committee’s consideration of, among other factors, the limited number of available authorized shares under the Equity Incentive Plan and, to a lesser degree, the level of equity grants that are most likely to ensure the continued alignment of management’s interests with those of PMI’s stockholders and reward the creation of shareholder value. In addition, the Committee considered the accomplishments of each of the NEOs in 2008 as an indicator of future performance, their strategic importance to PMI, prior equity grants awarded to each NEO, long-term incentive data from the Compensation Peer Group and other sources, and the Committee’s long-standing goal of retaining high quality executives.

Long-Term Cash Incentives. The cash bonus portion of the 2009 LTIP has two equal components: Cash Component A is based upon a two-year performance period beginning January 1, 2009 and ending December 31, 2010, and Cash Component B is based upon a performance period of three years from January 1, 2009. Earned bonuses, if any, will be paid following completion of the respective performance periods. The threshold, target and maximum percentages of salary at the beginning of the performance periods established for each NEO for these awards, depending upon achievement of LTIP cash performance metrics, are as follows:

The Company criteria chosen by the Committee in 2009 for the long-term cash incentives as key to the financial health of PMI are:

Cash Component A (50%): Capital Management. This objective will be measured by PMI’s risk to capital ratio, subject to threshold, target and maximum numeric metrics set by the Committee. Achieving threshold, target and maximum is also subject to continued compliance with PMI’s credit facility covenants, state insurance regulatory requirements and GSE eligibility requirements.

Cash Component B (50%): Return to Profitability. This objective, also subject to threshold, target and maximum numeric metrics set by the Committee, will be measured by U.S. mortgage insurance and consolidated net operating income.¹

The Company considers the numeric metrics for Cash Components A and B to be confidential. Based upon the facts that (i) the Committee has not historically paid bonus awards at the aggregate maximum level under the Bonus Plan or other past bonus plans and (ii) the criteria associated with potential maximum bonus payouts are significantly higher than current operating assumptions, the Committee believes that the criteria are sufficiently challenging and difficult to focus executives on superior achievement of the Company’s longer-term objectives.

OTHER BENEFITS. As part of a competitive overall compensation package, PMI provides the NEOs other benefits as described below.

Retirement and Savings Plans. PMI aims to provide the types of savings and financial security programs to assist employees in preparing for retirement that are customary among those companies that compete with us for talent. For example, qualified pension plans and supplemental employee retirement plans are common in the insurance industry and in our Compensation Peer Group. In addition, the vesting requirements of the retirement plans and of Company matching contributions provide significant retention value. The Named Executive Officers are eligible to participate in PMI’s broad-based 401(k) and retirement plans, the Supplemental Employee Retirement Plan (“SERP”) and the officer deferred compensation program. The 401(k) plan and the officer deferred compensation plan in some instances include matching cash or stock features. Company matching amounts allocated to the accounts of the NEOs are included in the Summary Compensation Table. The 401(k) plan employer match decreased for the 2008 plan year from a match of 50%, to a match of 25%, of the first 6% of compensation deferred. The pension plans and deferred compensation plan are described below under the 2008 Pension Benefits Table and 2008 Nonqualified Deferred Compensation Table. The SERP is intended to

provide benefits to eligible executives whose compensation exceeds annual compensation limits under federal law, that are comparable, as a percentage of compensation, to benefits provided to employees whose compensation does not exceed such limits. In 2007, in response to the need to manage PMI’s pension funding responsibilities, and in light of a growing trend among employers, PMI amended its retirement plan to convert it to a cash balance plan effective for new hires on and after September 1, 2007, and for all other employees on January 1, 2011. The amendment converted PMI’s future funding obligations from provision of a defined benefit to a defined cash contribution for the participants. The SERP was amended to provide similar terms and conditions.

In September 2008, as part of its 2008 cost-savings initiatives, for a limited time PMI provided a broad-based early retirement program opportunity for all employees who were at least age 52 and with at least seven years of eligible service to PMI at that time. Employees electing to participate in the early retirement program received credit for three additional years of service and age for purposes of vesting and benefit accrual with respect to the PMI Retirement Plan and SERP and three additional years of benefit accrual service for purposes of calculating PMI’s subsidy of monthly premiums for retiree health benefits. In addition, each participant received a cash payment in consideration of entering into an agreement providing for non-disclosure and other post-retirement terms and conditions. Messrs. Roberts and Shuster elected to participate in the early retirement program and each retired on October 31, 2008. See the Summary Compensation Table and the 2008 Pension Benefits Table for information on their early retirement benefits.

Health, Life, Disability and Similar Group and Broad-Based Benefits. Other benefits provided by PMI to its executive officers include life, disability and medical insurance (including retiree health benefits) under PMI’s group benefits plans, and the Employee Stock Purchase Plan, which permits the purchase of Company stock at a 15% discount. We believe that these programs are important prerequisites to hiring quality employees.

Perquisites. The Company provides to the Named Executive Officers a limited number of perquisites, including for each executive, an auto allowance, financial planning and tax preparation services. These benefits, shown in the All Other Compensation section following the Summary Compensation Table, provide a measure of convenience and minimize distractions from the executive’s attention to the demands of his or her position.

Indemnification. All NEOs have entered into indemnification agreements pursuant to which PMI is obligated to provide defense and indemnification, including advancement of expenses, in the event that certain claims are asserted against the covered individuals. PMI also provides directors’ and officers’ liability insurance for its directors and executive officers.

CHANGE OF CONTROL ARRANGEMENTS. PMI has entered into change of control agreements with each of its executive officers. These agreements are designed to retain the executives and continue their focus on creating shareholder value even in the event of a potential or actual change of control. The Committee believes it is imperative to be able to maintain a stable and competent management base, and that PMI’s continued success depends, to a significant degree, on the skills and leadership of our senior officers. By mitigating the effects of job-related uncertainty due to a potential change of control, the change of control agreements (“COC Agreements”) are intended to assure that PMI will have the continued dedication of our senior officers by diminishing the inevitable distraction of such officers by virtue of the personal uncertainties and risks arising from a change of control of PMI. A description of the material terms of these agreements is contained in the section below entitled Potential Payments in Connection with a Change of Control. The multiples applied to each executive’s entitlement to compensation and benefits under these agreements were designed to assure the stability needed for both the executive and the Company, and were determined by the Committee in consultation with the Compensation Consultant and counsel retained for purposes of providing advice regarding the terms and conditions of the COC Agreements. No NEO has a multiple in excess of three. The COC Agreements were amended in 2008 to comply with Code Section 409A and regulations thereunder (“Section 409A”), generally providing for a six-month delay in the receipt of certain payments under the Agreements.

NO EMPLOYMENT OR SEVERANCE ARRANGEMENTS. Other than the above described COC Agreements and the 2008 early retirement program, PMI has not had any employment agreement or severance plan or arrangement with respect to its executive officers.

EQUITY AWARDS PRACTICES. Equity awards at PMI are granted pursuant to the Equity Plan. In accordance with this plan, the Committee reviews and approves all equity awards to officers (i) who are subject to the reporting requirements of the Exchange Act or (ii) whose base salary is at least $260,000 and who have Company-wide authority (collectively, “executives”). The Named Executive Officers are part of this executive group. While the Committee has the authority to make equity awards under the plan at any time, the Committee generally awards equity incentives to our executives annually after PMI’s financial results for the previous year have been publicly disclosed. The Equity Plan defines the “Grant Date” of an equity award as “the date on which the [Compensation] Committee approves the material terms of the Award or such later date as the Committee, in its discretion, may determine.” In addition, the plan mandates that the exercise price of stock options be not less than 100% of the fair market value of PMI common stock on the Grant Date.

Annual equity awards to non-executive officers and other employees at PMI are made in a manner similar to the practice described above. Consistent with the Equity Plan, the Committee has delegated to the CEO the authority to grant equity awards to non-executive officers and employees. Annual equity awards to this group of employees are generally granted on the same dates and bear the same exercise prices (as applicable) as awards to executives. The Company’s practice is for the CEO to grant equity awards to eligible newly hired and promoted non-executive employees once per quarter, on the tenth day (or, if not a business day, the next succeeding business day) of the second month of each calendar quarter. The equity awards are generally made during time periods when the Company’s earnings for the previous reporting period have been published. We have not engaged in any market-timing with respect to equity awards.

Deductibility of Executive Compensation. The Committee considers whether compensation paid to PMI’s executives will be fully tax deductible to PMI. Section 162(m) of the Internal Revenue Code (the “Code”) contains special rules regarding the federal income tax deductibility of compensation paid to the Chief Executive Officer and to each of the other three most highly compensated Named Executive Officers, excluding the Chief Financial Officer (“Section 162(m) NEOs”). The general rule is that annual compensation paid to any of these executives will be deductible to PMI only to the extent that it does not exceed $1,000,000 or qualifies as “performance-based” compensation under Section 162(m). The Committee considers the impact of the federal income tax deductibility limits of Section 162(m) in making decisions about executive compensation. The Committee has the discretion to make nondeductible awards, to the extent the Committee determines it is consistent with PMI’s best interests, considering objectives such as, but not limited to, rewarding employees for excellent service or recruiting new executives, while taking into consideration the financial effects such action may have on PMI. For example, time-vested restricted stock and stock units are not performance-based under Section 162(m); but the Committee has determined that these equity instruments should be, from time to time, an important part of PMI’s equity incentive compensation program. All compensation paid to the Section 162(m) NEOs in 2008 was within the deductibility limits of Section 162(m). The Bonus Plan and the Equity Plan are intended to qualify as performance-based plans under Section 162(m), thereby exempting certain awards under the plans from limits on tax deductibility. See Item 3 below regarding management’s proposal to submit an amended Equity Plan to stockholders for approval, in order for the plan to continue to permit the grant of awards that qualify as performance-based compensation under Section 162(m), thereby permitting PMI to continue to receive a federal income tax deduction in connection with such awards.

Nonqualified Deferred Compensation. Section 409A governs non-qualified deferred compensation arrangements. If the Section 409A requirements are not met, the recipient of the non-qualified deferred compensation can be subject to adverse tax consequences. A number of the compensation programs of PMI contain provisions that are subject to Section 409A, which prescribes the manner of enrollment and changes to

participation in such plans, as well as limits on distributions in certain circumstances. Section 409A also generally requires a six-month delay in distributions of non-qualified deferred compensation to key employees following a separation from service. PMI’s nonqualified deferred compensation program for officers is described below under the heading 2008 Nonqualified Deferred Compensation Table. To assist in preventing adverse tax consequences under Section 409A, PMI has structured its compensation and benefits arrangements in a manner intended to comply with Section 409A.

Accounting for Stock-Based Compensation. PMI accounts for stock-based payments, including stock options, restricted stock and restricted stock units awarded under the Equity Plan, in accordance with the requirements of Statement of Financial Accounting Standard No. 123R (“FAS 123R”). The Committee weighed the cost of stock options and restricted stock units granted in 2008 against the benefits of their incentive value and determined that providing such equity incentives to our executive officers was in the best interests of PMI and its stockholders.

Potential Impact on Compensation from a Significant Restatement of Financial Results. In the event of a significant restatement of PMI’s financial results caused by executive fraud or willful misconduct, the Board may take any number of actions with respect to such executive(s), depending upon the facts and circumstances, including, but not limited to (1) termination of employment, (2) initiating an action for breach of fiduciary duty, and/or (3) seeking reimbursement of any portion of performance-based or incentive compensation paid or awarded to the executive that is greater than would have been paid or awarded if calculated based on the restated financial results. These remedies would be in addition to, and not in lieu of, any actions imposed by law enforcement agencies, regulators or other authorities, or Section 304 of the Sarbanes-Oxley Act, which requires reimbursement by the CEO and Chief Financial Officer of bonus or equity-based compensation received, as well as any profits from the sale of a company’s securities, during the 12-month period following initial publication of financial statements required to be restated due to material non-compliance with the financial reporting requirements as a result of misconduct.

PMI’s executive compensation program is designed to achieve the Committee’s goals of attracting, motivating and retaining highly talented executives who are focused on creating long-term shareholder value. The individual compensation decisions that the Committee made for 2008 were made with these important goals in mind. As a consequence of PMI’s 2008 financial results and financial condition, compensation earned by the CEO represented a decrease over 2007 compensation, as reflected in the Summary Compensation Table. We believe that compensation changes made and proposed for the executive compensation program in 2009 will enhance our executive compensation program and motivate our executives to achieve desired results in 2009 and beyond.

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis as set forth in this Proxy Statement. Based on such review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in PMI’s 2008 Annual Report on Form 10-K through incorporation by reference to this Proxy Statement.

Except to the extent otherwise specifically stated by PMI, the Compensation Committee Report and those portions of the Audit Committee Report that are not deemed filed for purposes of the Securities Exchange Act of 1934 shall not be deemed incorporated by reference into any filing with the SEC and shall not otherwise be deemed filed with the SEC.

The following table provides information about compensation earned by our Named Executive Officers in the years indicated.

Retirement of Officers. Messrs. Shuster and Roberts retired from PMI on October 31, 2008.

Salary. Pursuant to the 2005 Officer Deferred Compensation Plan, Mr. Lofe deferred part of his salary earned in 2008 and 2007, and Messrs. Smith and Lofe deferred part of their respective salaries earned in 2006.

Bonus. This column represents discretionary bonuses paid outside the Company’s Bonus Plan for achievement in 2007. Messrs. Lofe and Roberts deferred receipt of some or all of their respective bonuses earned in 2007 pursuant to the 2005 Officer Deferred Compensation Plan.

Stock Awards. This column represents the aggregate costs (“compensation expense”) recognized in the Company’s 2008 consolidated financial statements for restricted stock awards granted to the NEOs in May 2005, and, included for 2008, restricted stock units (“RSUs”) granted in March 2008. The costs for the awards were determined in accordance with FAS 123R, except that the impact of estimated forfeitures related to service-based vesting conditions, if any, is excluded. The amounts in the column reflect the Company’s accounting expense and do not correspond to the actual value that will be recognized by the executive. The RSU expense represents the fair value of PMI’s common stock at $5.15 per unit. The fair value is determined based on the fair value of PMI’s common stock as of the grant date, less the present value of future expected dividends. The restricted stock vests four years from grant, provided that the holder remains employed by, or a consultant to, PMI, and vesting was accelerated for participants in the Company’s early retirement program in 2008. The restricted stock units vest in three equal, annual installments from the date of grant. The compensation expense related to the RSUs granted to Messrs. Smith, Shuster and Roberts was recognized in 2008 due to their early retirement eligibility.

Option Awards. This column represents the compensation expense recognized in the Company’s 2008 consolidated financial statements for stock options granted in 2008 and prior years. The costs for the stock option grants were determined in accordance with FAS 123R, except that the impact of estimated forfeitures related to service-based vesting conditions, if any, is excluded. The amounts in the column reflect the Company’s accounting expense and do not correspond to the actual value that will be realized by the executive. The assumptions for making the valuation determinations of all options granted are based upon a Black-Scholes option pricing model and are set forth in Note 17 to our consolidated financial statements in PMI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. In accordance with FAS 123R, PMI recognized, in the year of grant, 100% of the grant-date value of awards to Messrs. Roberts, and Smith, who were eligible for retirement at the date of grant, as defined by the Equity Plan. For the other NEOs, the expense recognized in 2008 related to option grants in 2006 through 2008, the expense recognized in 2007 related to option grants in 2006 and 2007, and the expense recognized in 2006 related to option grants in 2003 and 2006. Due to the retirement eligibility of Mr. Shuster under the early retirement program in 2008, unrecognized compensation expense related to all his option grants was accelerated in 2008. See the table, Grants of Plan-Based Awards in 2008, for information on options granted in 2008.

Non-Equity Incentive Plan Compensation. Amounts set forth in this column represent bonuses earned under the PMI Bonus Plan, a plan intended to qualify under Section 162(m), pursuant to corporate performance goals that were set by the Compensation Committee of the Board of Directors (the “Committee”). For years other than 2008, amounts for a designated year represent amounts earned in that year and paid in the subsequent year. For the bonuses earned in 2008, one-half of the amounts shown were paid to the executives in March 2009 for 2008 performance. The remaining one-half of the amounts will be paid upon vesting, which requires continued employment until July 1, 2010, or termination of employment without cause prior to that time. Pursuant to a shareholder-approved amendment to the PMI Bonus Plan, beginning in 2008, the Committee selects participants, performance periods and performance goals from those available under the Plan. The Committee also establishes target and maximum amounts with respect to such goals for each participant. No participant may receive more than $12 million in bonus awards under the Plan during any three-year period. The Plan does not provide the Committee with the discretion to pay bonuses under the Bonus Plan in excess of the calculated awards. The

Committee has discretion under the Bonus Plan to reduce or eliminate any bonuses payable under Bonus Plan. See Compensation Discussion and Analysis above for more information on the Committee’s actions with respect to the PMI Bonus Plan.

Prior to the 2008 amendment, the Plan provided for the payment of bonuses from a pool determined by the Committee and calculated as a percentage (not exceeding 5%) of PMI’s consolidated net income for the year. The Plan also limited the amount that could be paid to any one executive to 30% of the net income pool. To assist the Committee in deciding whether, and to what extent, to pay bonuses out of the bonus pool, the Committee annually set and reviewed Company performance criteria in conjunction with other quantitative and qualitative factors relating to the Company’s performance, as well as the performance of the individual executive.

Pursuant to the 2005 Officer Deferred Compensation Plan, Messrs. Lofe and Porter deferred some or all of their bonuses earned in 2008 under the Bonus Plan; and Messrs. Smith, Lofe, Katkov, Shuster and Roberts deferred some or all of their bonuses earned in 2006 under the Bonus Plan.

Change in Pension Value and Non-Qualified Deferred Compensation Earnings. This column represents the sum of the changes in the actuarial pension values in the years indicated for each NEO under the PMI Retirement Plan and, as applicable, the PMI Supplemental Employee Retirement Plan (“SERP”). The values of the NEOs’ pension benefits were determined using a rate of 6.17% for the PMI Retirement Plan and 6.08% for the SERP, consistent with the rate used in the Company’s FAS 158 disclosure for fiscal year 2008. The pension values at each year end were calculated based on benefits payable at age 65. PMI does not provide above-market rates of return or preferential dividends under its deferred compensation plans. See the 2008 Pension Benefits Table and the 2008 Nonqualified Deferred Compensation Table below for additional information.

All Other Compensation. All Other Compensation amounts in the Summary Compensation Table consist of the following items:

In 2008, Mr. Lofe received employer matching contributions under the 2005 Officer Deferred Compensation Plan of 7,238 shares of PMI common stock equivalents, with the aggregate value as shown above, based upon $1.95 per share, the closing price of our common stock on December 31, 2008. Miscellaneous perquisites consisted primarily of premiums paid for extended business travel insurance coverage for officers and reimbursed physical exams. We value perquisites at the cost actually paid by PMI.

Overseas payments to Mr. Porter related to his multi-year European assignment that ended in December 2008. The payments included tax equalization payments in 2008 to the Irish government of approximately $213,000 related to 2007 taxes, a cost-of-living adjustment of approximately $60,000, and a repatriation payment of $73,000. The remainder of the payments consisted of expenses of moving his family back to the U.S., an additional car allowance, storage and property management fees, and tax preparation fees.

The following table provides information about non-equity awards under the Bonus Plan and equity awards under the Equity Plan earned or granted to the Named Executive Officers in 2008. These non-equity and equity awards are discussed in detail in the Compensation Discussion and Analysis above.

Equity Plan Awards. The column All Other Stock Awards shows the number of restricted stock units granted in 2008 to the NEOs under the Equity Plan. The column All Other Option Awards shows the number of stock options granted in 2008 to the NEOs under the Equity Plan. The stock options and restricted stock units each vest in three equal installments on the first, second and third anniversaries of the grant, assuming continued employment with PMI. Pursuant to the plan, vesting accelerates upon death, “Disability,” “Retirement,” or a “Change of Control” as those terms are defined in the plan. The maximum term of the options is ten years. Pursuant to the plan, each option exercise price was set at 100% of the fair market value per share as of the date of grant, which is defined by the plan as the closing market price of PMI common stock on the New York Stock Exchange on the date of grant. The estimated grant date fair value of the stock options and units is determined in accordance with FAS 123R, disregarding that PMI generally recognizes the value of awards for financial reporting purposes over the vesting period of the awards. The fair value amounts of the options were calculated as of the dates of grant of the options using a Black-Scholes option pricing model. The assumptions utilized in the model are contained in Note 17 to the audited consolidated financial statements contained in the Company’s 2008 Annual Report on Form 10-K. The fair value of the restricted stock units is determined using the closing price of the Company’s stock on the date of grant less the present value of anticipated dividends over the vesting period. The discount rate used is the risk-free rate as of the date of grant of 2.12%. There were no repricings, extension of exercise periods or changes to forfeiture terms with respect to the equity awards during 2008.

The following table provides information about the holdings of equity awards by the Named Executive Officers at December 31, 2008. All equity awards were granted pursuant to the Equity Plan.

Stock Options. For more information about the standard terms and conditions of the outstanding options, see Equity Plan Awards under Grants of Plan-Based Awards in 2008 above. Options marked with an asterisk were each automatically granted by PMI upon exercise of a previously granted option by payment of the exercise price and/or tax withholding requirements with already-owned shares of our common stock pursuant to the Equity Plan. Such an option is generally exercisable on the same terms and conditions as the previously granted option, except that it vests immediately upon the grant date and has a per share exercise price equal to the fair market

value of a share of common stock on the new option grant date. The exercise price and tax withholding may be paid in cash and/or shares of common stock that would otherwise have been received on exercise. This option does not carry a subsequent automatic grant feature.

Stock Awards. The stock awards shown include restricted stock and restricted stock units. The restricted stock will vest as to 100% of the shares on the earlier of (i) the fourth anniversary of the grant subject to continued service as an employee, director or consultant through the vesting date; (ii) the date of termination of service due to death or “Disability” as defined by the Equity Plan; or (iii) a “Change of Control” as defined by the Equity Plan. The restricted stock units will vest in three, equal annual installments on anniversaries of the date of grant. The market value of the stock awards is based upon the closing market price of PMI common stock on December 31, 2008, which was $1.95 per share.

The following table shows, for each NEO, information about stock awards vested during 2008. No options were exercised by NEOs during 2008.

The value realized upon vesting of stock awards is determined, for purposes of proxy disclosure rules, by multiplying the number of shares vested by the closing market price per share of PMI common stock on the date of vesting. The actual amounts realized upon the vesting of stock awards depend upon the sale prices of the acquired shares when actually sold.

The following table provides information regarding the accumulated benefits at year-end, and distributions, under the Retirement Plan and the SERP for each of the Named Executive Officers.

The Named Executive Officers participate in defined benefit retirement plans sponsored by PMI, including the following plans.

The Retirement Plan. The Retirement Plan is a defined benefit pension plan for PMI employees that is intended to qualify under Section 401(a) of the Code. The pension benefit under the Retirement Plan generally is based on the eligible employee’s years of credited service and the average of his or her five highest consecutive years’ compensation in the last ten years of service, but will not be less than the minimum dollar amount specified for him or her under the Retirement Plan. In September 2008, as part of its 2008 cost-savings initiatives, PMI amended the Retirement Plan and SERP in order to provide a one-time broad-based early retirement program opportunity window for all employees who were at least age 52 and with at least seven years of service to PMI at that time. Employees electing to participate in the early retirement program received credit for three additional years of service and age for purposes of vesting and benefit accrual with respect to the Retirement Plan and SERP, and three additional years of benefit accrual service for purposes of calculating PMI’s subsidy of monthly premiums for retiree health benefits. In addition, each participant received a cash payment in consideration of entering into an agreement providing for non-disclosure and other post-retirement terms and conditions. Messrs. Roberts and Shuster elected to participate in the early retirement program and each retired on October 31, 2008. The years of credited service for them in the above table reflect only their actual service, but the payments indicated include the increased benefit for the extra years of credited service. The SERP payments for Messrs. Shuster and Roberts will be made six months after their retirement date, pursuant to the requirements of Section 409A. See the Summary Compensation Table and the 2008 Pension Benefits Table above for information on their early retirement benefits.

The Supplemental Employee Retirement Plan (“SERP”). The SERP is a nonqualified defined benefit pension plan designed to provide benefits that otherwise would have been provided under the Retirement Plan but for the limitations under Sections 401(a)(17) and 415 of the Code. Pursuant to such limitations, compensation counted for purposes of the Retirement Plan could not exceed $230,000 in 2008. The pension benefit under the SERP is based on the difference between the benefit that would have been payable to the eligible employee under the Retirement Plan but for the Code limitations and the benefit amount actually payable from the Retirement Plan.

Calculation of Benefits under the Plans. The present values of the accumulated benefit at December 31, 2008 for the Named Executive Officers under each plan were calculated based on benefits payable at age 65, the earliest age at which unreduced benefits are payable under the plans. Calculation of present value reflects SFAS No. 158 pension obligation assumptions described in Note 16 to our audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008, with a present value rate of 6.17% for the Retirement Plan and 6.08% for the SERP. The SERP provides that, where the accumulated benefits for an individual are less than the limits imposed by Section 415 of the Code, the benefits are transferred to the Retirement Plan. For Mr. Lofe and Ms. Berkowitz, accumulated benefits under the SERP through December 31, 2008 have been transferred to the Retirement Plan and are included in the Retirement Plan amounts.

Benefits under the Retirement Plan and SERP are generally based upon the total annual cash compensation paid to the participant for services rendered to PMI and its affiliates, including pre-tax deferrals, but excluding certain items such as equity-based compensation and the value of employer contributions to employee benefit plans. PMI retirees with at least ten years of service who were hired prior to January 1, 2005 also receive retiree health benefits that entail participant contributions to premiums and other costs.

Both the Retirement Plan and the SERP provide credit for all service with PMI; Sears, Roebuck and Co.; and Allstate Insurance Company. Certain agreements between the NEOs and the Company provide additional years of credited service in the event of a change of control. See Potential Payments in Connection with a Change of Control below. Benefits are computed on a straight-life annuity basis and are not subject to deduction for social security or other offset amounts. Normal retirement is at age 65. Early retirement benefits are available at age 55 with at least ten years of credited service, reduced by 4.8% per year for each year earlier than a specified base benefit year in which the participant elects to receive the early retirement benefits. SERP benefits are generally payable following a distribution event under the Retirement Plan. Under both plans, a retiree may elect lump sum or annuity forms of benefits. Certain participants in the SERP may be required to incur a six-month delay in receipt of SERP benefits pursuant to Section 409A of the Code. Mr. Smith is currently eligible for early retirement benefits under the plans.

Amendment of the Plans. In 2007, PMI amended the Retirement Plan to change it to a cash balance plan. The amendment was effective for employees hired on or after September 1, 2007, and takes effect for other employees on January 1, 2011. Under its original terms, the Retirement Plan defined a benefit to be paid based primarily on years of service and compensation. Under the cash balance plan terms, PMI will contribute a percentage of each participant’s eligible compensation to his/her plan account each year. Accompanying modifications were made to the SERP.

Additional Benefit Plan. In addition to the benefits provided by the Retirement Plan and SERP, PMI sponsors The PMI Group, Inc. Additional Benefit Plan. The Additional Benefit Plan is a nonqualified defined benefit pension plan that provides a bridge benefit for a “Highly Compensated Employee” (as defined in the plan) who retires from PMI over age 55 with more than 20 years of combined service with PMI and Allstate Insurance Company (“Allstate”), but with less than 20 years of service at Allstate. The benefit is payable from the participant’s early retirement date until the date he or she becomes eligible to receive Allstate retirement benefits. Of the Named Executive Officers, only Mr. Smith is currently eligible to receive this bridge benefit. If, for example, Mr. Smith had retired at December 31, 2008, the benefit payable would have been approximately $3,420 per month until the earlier of the date he is eligible for Allstate retirement benefits and June 1, 2012. If Mr. Smith retires after June 1, 2012, no benefit will be due to him from the Additional Benefit Plan. Messrs. Katkov and Porter may also be eligible to receive a future benefit from the Additional Benefit Plan. In order to receive this benefit, Mr. Katkov must continue to work at PMI until he attains 20 years of combined service (July 27, 2012). Assuming retirement at his earliest eligibility date, the benefit payable to Mr. Katkov would be approximately $230 per month until the earlier of the date he is eligible for Allstate retirement benefits and February 1, 2021. In order to receive this benefit, Mr. Porter must continue to work at PMI until he attains age 55 (March 16, 2015). Assuming retirement at his earliest eligibility date, the benefit payable to Mr. Porter would be approximately $1,090 per month until the earlier of the date he is eligible for Allstate retirement benefits and April 1, 2025.

The following table shows contributions, earnings, balances and distributions for each Named Executive Officer under the 2005 Officer Deferred Compensation Plan for 2008.

The Named Executive Officers are eligible to participate in the 2005 Officer Deferred Compensation Plan (which includes its predecessor plan), which permits each participant to elect to defer receipt, on a pre-tax basis, of part or all of his base salary and/or cash bonus to be earned in the coming year. There is a minimum deferral of the lesser of $5,000 or 5% of compensation but no maximum. Under the plan, PMI makes a matching contribution in PMI common stock equivalents equal to 25% of the amount a participant initially elects to have deemed invested in our common stock. The matching contribution vests after three years of continued employment, or earlier in the event of death, disability or a change of control (as defined in the plan). A participant may elect to receive, upon distribution of his or her account, a lump sum in cash or up to ten annual cash installments, except that any 25% matching contribution is paid in shares of PMI common stock. The timing of distribution(s) is also at the election of the participant, provided that the participant’s vested account balance will become distributable upon his or her separation from service, death, disability or a change of control. Certain participants are also subject to a six-month delay in such distributions due to separation from service pursuant to Section 409A. Each participant chooses earnings measures from among a group of approximately 60 deemed investments made available by the Company, including PMI common stock equivalents and the investments available in a typical retirement savings account. Participants may change their investment elections at any time. PMI does not guarantee a minimum level of return for deferred compensation under the 2005 Officer Deferred Compensation Plan. Participants may apply to the plan committee for withdrawal of their vested account balances in cases of severe financial hardship from illness or accident, or from a casualty loss of property or similar hardship. The Officer Deferred Compensation Plan in effect prior to 2005 (the predecessor plan), was frozen effective December 31, 2004 and no new compensation deferrals could be made under that plan after that date.

PMI has no employment or severance agreements with the Named Executive Officers other than the COC Agreements discussed in the section, Potential Payments in Connection with a Change of Control, below and the agreements entered into in connection with the 2008 early retirement program. The following table assumes a hypothetical termination of employment on December 31, 2008 unrelated to a change of control. As described in the notes to the following table, certain PMI plans provide benefits upon termination of employment in certain circumstances as applicable to each NEO. It is assumed that base salary and accrued vacation are paid to the termination date. Bonuses paid in 2009 for the 2008 performance period are not included in the table below. Because Messrs. Shuster and Roberts retired in October 2008, they are not included in the table below.

Under the 2005 Officer Deferred Compensation Plan, upon termination of employment for any reason, a participant’s account balance is distributed. Distributions due to termination of employment are deferred for six months for certain participants, pursuant to Section 409A of the Code. See the 2008 Nonqualified Deferred Compensation Table, above, for 2008 year-end NEO aggregate balances.

Retirement Plan and SERP. If a participant with vested retirement benefits terminates employment prior to early or normal retirement age, upon reaching normal retirement age, he or she will receive normal (un-reduced) retirement benefits. While the retirement benefit is reduced for early retirement, it starts earlier and continues for

a longer period of time, and the present value of such benefits includes the extended benefit payment period. The Retirement Plan offers a spousal death benefit in the event a vested employee dies during employment. The bridge benefit under the Additional Benefit Plan described following the 2008 Pension Benefits Table above is not included in the amounts in this table. At December 31, 2008, Mr. Smith had vested benefits and was eligible for early retirement but not yet eligible for normal retirement. Messrs. Lofe, Katkov, Porter and Ms. Berkowitz had vested benefits but were not yet eligible for early retirement or normal retirement.

Equity Acceleration. The Equity Plan provides that, upon termination of service due to death or disability, all equity awards held by a participant will become 100% vested and immediately exercisable. Stock options and restricted stock units also vest at retirement. Restricted stock awarded to the NEOs does not generally vest upon retirement. Restricted stock and restricted stock unit values are based upon the closing market price of PMI common stock on December 31, 2008, which was $1.95 per share. All stock options held by the NEOs at year-end had exercise prices in excess of the market price.

PMI has entered into change of control agreements (“COC Agreements”) with all of our Named Executive Officers. Generally, severance benefits will be triggered under the COC Agreements if a change of control occurs and the executive’s employment is terminated during the three year period following a change of control (i) by the executive for “good reason,” as defined in the COC Agreements, or (ii) by PMI (or a successor) other than for “cause,” death or “disability,” as defined in the COC Agreements. The COC Agreements were amended in 2008 to comply with Section 409A, generally providing for a six-month delay in the receipt of certain payments under the Agreements.

“Good reason” is defined in the COC Agreements to include: (i) the assignment to any duties inconsistent in any substantial respect with the executive’s position, authority, duties or responsibilities, or any other substantial diminution in such position, authority, duties or responsibilities; (ii) failure of PMI to comply with compensation and benefits commitments; (iii) relocation or substantial increase in travel; (iv) a purported termination of the COC Agreement by PMI other than in accordance with the COC Agreement; or (v) PMI’s failure to require any successor to it to comply with the COC Agreement. “Good reason” also includes termination of employment by the executive for any reason during the 30-day period following the one year anniversary of a change of control. “Cause” means the willful and continued failure of the executive to perform his or her duties or the willful engaging by the executive in illegal conduct or gross misconduct materially injurious to PMI.

Under the COC Agreements, “change of control” generally means the earliest to occur of: (a) the acquisition by any individual, entity or group of 20% or more of the then outstanding shares of PMI’s common stock (excluding acquisition directly from PMI, or by any employee benefit plan sponsored or maintained by PMI); (b) the failure of the current Board members, for any reason, to constitute at least a majority of the Board (excluding individuals whose election to the Board was approved by the current Board); (c) consummation by PMI of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of PMI or the acquisition of assets of another entity unless, following such business combination, certain conditions are met; or (d) the approval by PMI’s stockholders of a complete liquidation or dissolution of PMI.

Payments and benefits payable under the COC Agreements in the event of a qualifying termination include a lump-sum cash payment of the aggregate of the following amounts: (i) the sum of the executive’s annual base salary through the date of termination; (ii) a pro rata bonus for the portion of the year during which termination occurs equal to the greater of the executive’s highest bonus earned under our annual incentive plans for the last three full fiscal years preceding the change of control and the executive’s annual bonus earned during the last fiscal year prior to termination (such greater amount, the “Highest Annual Bonus”); (iii) any compensation previously deferred by the executive; (iv) any accrued vacation pay; (v) up to three times (the “multiplier”) (depending on the executive involved) the sum of the executive’s annual base salary and the Highest Annual Bonus; (vi) the difference between

the aggregate benefit under the Retirement Plan and SERP which the executive would have accrued (whether or not vested) had the Executive’s employment continued for up to three years (depending on the executive involved) after the date of termination, and the actual vested benefit under such plans as of the date of the executive’s termination of employment; (vii) credit of up to three years (depending on the executive involved) for purposes of eligibility for retiree medical benefits, although Executives who are at least age 50 on the date of termination are deemed to be eligible for retiree medical benefits; (viii) continuation of welfare benefit plan coverage (i.e., health, life, disability and similar benefits) for up to three years (depending on the executive involved); and (ix) outplacement services not to exceed 15% of base salary (estimated for purposes of the table below at $25,000 per NEO). Under certain circumstances following a change of control, a portion of the present value of the benefits payable either under the COC Agreement or otherwise, or upon the acceleration of the vesting of all outstanding stock options, restricted stock and stock units could be subject to a 20% excise tax under the Code, and be nondeductible by PMI. PMI has agreed to reimburse the executives for any such excise taxes, together with any additional excise or income taxes resulting from such reimbursement, whether or not the employment of the Executive has been terminated; provided, however, that if the change of control payments and benefits exceed the applicable excise tax safe harbor by 10% or less, the change of control payments and benefits will be reduced below the safe harbor to avoid application of the excise tax and gross up.

The health benefits provided to executives under the COC Agreements are secondary to other health benefits to which an executive becomes eligible upon re-employment. Under the COC Agreements, the executives are subject to a confidentiality covenant. No new COC Agreements were entered into in 2008 that provide an excise tax gross up, or that provide benefits upon a change of control unaccompanied by an adverse change in employment.

Certain PMI benefit plans provide for the acceleration of benefits upon a change of control without an adverse change in employment. The Equity Plan provides that, upon a change of control, outstanding equity awards generally become 100% vested. Under the Equity Plan, the term “change of control” is generally the same as that for the Agreements. Restricted stock and stock unit values are based upon the closing market price of PMI common stock on December 31, 2008, $1.95 per share. All options held by NEOs at December 31, 2008 had exercise prices in excess of the closing price at year-end. The Officer Deferred Compensation Plan, in effect prior to 2005, and the 2005 Officer Deferred Compensation Plan each provide that, upon a change of control, a participant’s deferred compensation account will be distributed in full. The definition of “change of control” contained in the pre-2005 Plan is generally the same as that for the COC Agreements. Under the 2005 Plan, the term “change of control” is as defined in Section 409A. See the 2008 Nonqualified Deferred Compensation Table, above, for 2008 year-end NEO balances. In addition, upon a change of control, the Company is obligated to set aside assets into a “rabbi trust” for the payment of benefits under the SERP.

Retirement Plan and SERP. Under the COC Agreements, each eligible NEO would receive credit for the number of additional years of service that represents his multiplier. For example, an NEO with a multiplier of 3 would receive credit for 3 additional years of service under the Retirement Plan and SERP. The information in the SERP column is the incremental increase in the SERP benefits based on the additional service credit. Due to the compensation limits of the Retirement Plan, the additional service credit did not augment the Retirement Plan benefits for the NEOs. See information on the Retirement Plan and SERP in the Potential Payments Upon Termination Unrelated to a Change of Control section.

The following table assumes a hypothetical termination of employment date and a change of control date of December 31, 2008, and provides information on the augmented benefits payable to NEOs upon termination of employment accompanied by a change of control. Because Messrs. Shuster and Roberts actually retired in October 2008, they are not included in the table below. Base salary and accrued vacation are assumed to be paid to the date of termination. Because the vesting of equity awards accelerates upon either a change of control, or upon certain events related to termination of employment, the value of accelerated equity is set forth in both the table below and also in the table under Potential Payments Upon Termination Unrelated to a Change of Control.

During 2008, the following directors served as members of the Compensation Committee of the Board of Directors: Louis G. Lower II, Chair, Ronald H. Zech, Vice-Chair, Raymond L. Ocampo Jr., Dr. Kenneth T. Rosen, Steven L. Scheid and José H. Villarreal. There were no interlocks or insider participation transactions or relationships among the Committee members and the Company during the past fiscal year.

The role of the Audit Committee is to assist the Board of Directors in its oversight of: (i) the integrity of PMI’s consolidated financial statements, (ii) PMI’s compliance with legal and regulatory requirements, (iii) the independent auditors’ qualifications and independence, and (iv) the performance of the independent auditors and PMI’s internal audit function; and to prepare this report. The Board of Directors, in its business judgment, has determined that all members of the Committee are “independent” as required by applicable listing standards of The New York Stock Exchange, the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission.

The Audit Committee Charter is reviewed at least annually by the Audit Committee and specifies the scope of the Audit Committee’s responsibilities. As set forth in the Charter, management is responsible for the preparation, presentation and integrity of our consolidated financial statements, our accounting and financial reporting principles and internal controls and procedures designed to ensure compliance with accounting standards and applicable laws and regulations. PMI’s independent auditors are responsible for auditing our consolidated financial statements and expressing an opinion as to their conformity with generally accepted accounting principles.

In the performance of its oversight function, the Audit Committee has reviewed and discussed PMI’s audited consolidated financial statements for the year ended December 31, 2008 and related controls, compliance and other matters with management and the independent auditors. These discussions included those matters required to be discussed by Statement on Auditing Standards No. 61 (as amended), Communication with Audit Committees, SEC Rules, and other professional standards, as currently in effect. The Audit Committee also has received the written disclosures and the letter from the independent auditors required by Rule 3526 of the Public Company Accounting Oversight Board, Communication with Audit Committees Concerning Independence, as currently in effect, and has discussed with the auditors the auditors’ independence. The Committee also reviewed management’s report on its assessment of the effectiveness of PMI’s internal control over financial reporting and the independent auditors’ report on the effectiveness of PMI’s internal control over financial reporting.

The members of the Audit Committee are not professionally engaged in the practice of auditing or accounting and are not necessarily experts in the fields of accounting or auditing, including in respect of auditor independence. Members of the Committee rely on the information provided to them and on the representations made by management and the independent auditors. Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal control and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions referred to above do not assure that our consolidated financial statements are fairly stated in all material respects, that the audits of our consolidated financial statements and internal control over financial reporting have been carried out in accordance with generally accepted auditing standards, that the consolidated financial statements are presented in accordance with generally accepted accounting principles or that our auditors are in fact “independent.”

In reliance upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the Audit Committee referred to above and as set forth in the Charter, the Audit Committee recommended to the Board of Directors that PMI’s audited consolidated financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2008 for filing with the Securities and Exchange Commission.

The Audit Committee has selected Ernst & Young LLP as the independent registered public accounting firm to audit our consolidated financial statements for the year ending December 31, 2009. The Board of Directors recommends that PMI’s stockholders ratify the Audit Committee’s selection of Ernst & Young LLP. Last year, PMI’s stockholders ratified the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2008. One or more representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and will have the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. This proposal is presented to the stockholders in order to permit them to participate in the selection of our auditors. If the stockholders do not ratify the appointment of Ernst & Young LLP, the Audit Committee will consider the appointment of other auditors; however, the Audit Committee reserves the right to retain Ernst & Young LLP regardless of stockholder ratification.

Under the Audit Committee Charter, the Audit Committee is directly responsible for the appointment, termination, compensation and oversight of the work of Ernst & Young LLP (including resolution of disagreements between management and the independent registered public accounting firm regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. Ernst & Young LLP reports directly to the Audit Committee. To ensure auditor independence with regard to services performed and to comply with the Sarbanes-Oxley Act of 2002 and the rules of SEC and the New York Stock Exchange, the Audit Committee has established detailed policies and procedures specifying services that may be performed by Ernst & Young LLP for PMI and its subsidiaries. These policies and procedures further require the pre-approval of specified services to be performed by Ernst & Young LLP. Pursuant to such policies and procedures, the Audit Committee has delegated to the Audit Committee Chair, or in the event the Chair is unavailable, the Vice Chair, the authority to pre-approve the engagement of Ernst & Young LLP to provide certain audit, audit-related, tax and other permitted non-audit services. Any pre-approval decisions by the Chair or Vice Chair must be reported to the Audit Committee at its next scheduled meeting. Additionally, an engagement letter satisfying specific requirements must be entered into before any such services may be provided by Ernst & Young LLP. PMI and its subsidiaries, and their officers and financial staff, are further precluded under the policies and procedures from engaging Ernst & Young LLP to provide any services that are prohibited by the SEC, or that would impact the independence of Ernst & Young LLP under the standards of the Public Company Accounting Oversight Board. No services were approved pursuant to the “de minimis” services safe harbor exception in 2008. For the year ended December 31, 2008, Ernst & Young LLP audited our consolidated financial statements and performed certain audit, audit-related and other services under an agreement that was subject to alternative dispute resolution procedures and an exclusion of punitive damages with respect to both parties.

AUDIT FEES. Fees for audit services totaled approximately $4,180,000 for the year ended December 31, 2008 and approximately $4,932,000 for the year ended December 31, 2007. The fees paid in each year primarily related to the annual audits of PMI and its subsidiaries, reviews of our quarterly reports on Form 10-Q, consents, comfort letter procedures, attestation on internal control over financial reporting required by section 404 of the Sarbanes-Oxley Act and audits of statutory financial statements required by state insurance departments and foreign regulatory bodies.

AUDIT-RELATED FEES. Fees for audit-related services totaled approximately $496,000 for the year ended December 31, 2008 and approximately $501,000 for the year ended December 31, 2007. The fees paid in each year primarily related to actuarial opinions required by state insurance departments and foreign regulatory bodies and audits of PMI’s employee benefit plans.

TAX FEES. There were no tax services provided to PMI by Ernst & Young LLP in 2008 or 2007.

ALL OTHER FEES. Fees for all other services not included above totaled approximately $12,000 for the year ended December 31, 2008 and approximately $20,000 for the year ended December 31, 2007. The fees paid in

each year principally related to Board and Board committee self-assessment survey compilation, a subscription for an accounting research tool and certain compliance reviews.

The Audit Committee believes that the provision of the services described above is compatible with the auditors’ independence.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS PMI’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31, 2009.

We are asking our stockholders to approve the amended and restated Equity Incentive Plan (“Equity Plan”) so that we can continue to use the Equity Plan to achieve our goals of attracting and retaining the best available personnel and to provide additional incentives to our employees to work diligently to promote our growth and profitability.

The Compensation Committee of our Board of Directors has approved the Equity Plan, subject to approval from our stockholders. If the stockholders approve the Equity Plan, it will replace the current version of the Equity Plan. If the stockholders do not approve the proposed changes, we will continue to provide equity compensation under the current version of the Equity Plan. However, our ability to provide the competitive compensation needed to motivate and retain outstanding talent may be hindered and certain of our awards will not qualify as performance-based compensation that is exempt from the deduction limits of Code Section 162(m) (as more fully described below under the section entitled “Tax Effect for PMI”).

Stockholders last approved the Equity Plan at PMI’s 2004 annual stockholders’ meeting. We now are proposing the following changes, subject to stockholder approval:

DESCRIPTION OF THE AMENDED AND RESTATED EQUITY INCENTIVE PLAN. The following paragraphs provide a summary of the principal features and operation of the Equity Plan. The Equity Plan as proposed to be amended is set forth in Appendix A to this Proxy Statement. The following summary is qualified in its entirety by reference to the Equity Plan.

Background and Purpose of the Amended and Restated Equity Incentive Plan. The Equity Plan permits the grant of the following types of incentive awards: (1) stock options, (2) stock appreciation rights (“SARs”), (3) restricted stock, (4) performance units, (5) performance shares and (6) stock units (individually, an “Award”). The Equity Plan is intended to increase incentives and to encourage share ownership on the part of eligible employees, non-employee directors and consultants who provide significant services to us. The Equity Plan also is intended to reward PMI’s growth and profitability and to permit us to grant Awards that qualify as performance-based compensation under Section 162(m) of the Code.

Administration of the Amended and Restated Equity Incentive Plan. The Equity Plan is administered by the Compensation Committee of our Board of Directors (the “Committee”). The members of the Committee must qualify as “non-employee directors” under Rule 16b-3 of the Exchange Act, and as “outside directors” under Section 162(m) of the Code, so that PMI can receive a federal tax deduction for certain compensation paid under the Equity Plan.

Subject to the terms of the Equity Plan, the Committee has the sole discretion to select the employees and consultants who will receive Awards, determine the terms and conditions of Awards (for example, the vesting schedule), and interpret the provisions of the Equity Plan and outstanding Awards. Our non-employee directors are eligible to receive only automatic and non-discretionary quarterly Awards of stock units. The Committee may delegate any part of its authority and powers under the Equity Plan to one or more directors and/or officers of PMI, but the Committee may not delegate its authority and powers with respect to officers of PMI who are subject to Section 16 of the Exchange Act or with respect to Awards that are intended to qualify as “performance-based compensation” under Section 162(m).

The Committee may not reduce the exercise price of an Award or permit the surrender or cancellation of an Award in exchange for (a) a substitute Award settled in Shares only having a lower exercise price, (b) a different type of Award settled in Shares only, or (c) a combination of (a) and (b).

Number of Shares of Common Stock Available Under the Equity Plan. A total of 18,000,000 Shares are reserved for issuance under the Equity Plan, and no more than 6,000,000 of those Shares may be issued pursuant to Awards of restricted stock, stock units, performance units or performance shares.

If an Award expires or is cancelled without having been fully exercised or vested, the unvested or cancelled Shares generally will be returned to the available pool of Shares reserved for issuance under the Equity Plan; provided that such Shares were (i) not issued in connection with the net settlement of an outstanding option, (ii) used to pay the exercise price or withholding taxes related to an outstanding Award, or (iii) repurchased on the open market with the proceeds of the exercise price of an option.

Also, in the event of any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), merger, reorganization, consolidation, recapitalization, separation, liquidation, stock split, reverse stock split, split-up, spin-off, Share combination, repurchase, or exchange of Shares or other securities of the Company, or other change in our corporate structure, the Committee shall adjust the number and class of Shares available for issuance under the Equity Plan, the outstanding Awards and the per-person limits on Awards, as appropriate to reflect the stock dividend or other change. The provisions of the Equity Plan describe these adjustments more clearly and expansively than the provisions of the plan document prior to the adoption of the Equity Plan.

Eligibility to Receive Awards. The Committee selects the employees and consultants who will be granted Awards under the Equity Plan. The actual number of individuals who will receive an Award under the Equity Plan cannot be determined in advance because the Committee has the discretion to select the participants. Our

non-employee directors are not eligible to receive discretionary Awards under the Equity Plan. Instead, our non-employee directors automatically are granted Awards of stock units with a predetermined value for each quarter that they serve on our Board. The Committee has delegated to the Chief Executive Officer the power to grant stock options to individuals with a base salary of less than $260,000 annually who are not subject to Section 16 of the Exchange Act.

Stock Options. A stock option is the right to acquire Shares at a fixed exercise price for a fixed period of time. Under the Equity Plan, the Committee may grant nonqualified stock options and/or incentive stock options (which entitle employees, but not PMI, to more favorable tax treatment). The number of Shares covered by each option will be determined by the Committee, but during any period of three consecutive fiscal years of PMI, no participant may be granted options covering more than 900,000 Shares.

The exercise price of the Shares subject to each option is set by the Committee but cannot be less than 100% of the fair market value on the grant date of the Shares covered by the option. An exception would be made for any options that PMI grants in substitution for options held by employees of companies that PMI acquires (in which case the exercise price preserves the economic value of the employee’s cancelled option from his or her former employer).

The exercise price of an incentive stock option must be at least 110% of the fair market value on the grant date of the Shares covered by the option if (on the grant date) the participant owns stock possessing more than 10% of the total combined voting power of all classes of stock of PMI or any of its subsidiaries. The aggregate fair market value of the Shares (determined on the grant date) covered by incentive stock options which first become exercisable by any participant during any calendar year also may not exceed $100,000.

The Committee establishes the vesting schedule of each option at the time of grant. Options become exercisable at the times and on the terms established by the Committee. However, if a participant terminates his or her service due to retirement, death or disability, or if a change of control occurs prior to the participant’s termination of service (as determined under the terms of the Equity Plan), his or her options would vest immediately. Subject to the terms of the Equity Plan, options granted thereunder expire at the times established by the Committee, but not later than ten years after the grant date (except in certain cases of death, in which case a participant’s option may remain exercisable for up to three years after the date of death). Except as otherwise provided in this paragraph (with respect to accelerated vesting), upon any termination of service, unvested options expire immediately. In addition, subject to the ten-year option term (up to 13 years in the event of death), vested options generally expire three years following termination due to death, disability or retirement, and one year following any other termination.

The exercise price of each option granted under the Equity Plan must be paid in full in cash (or cash equivalent) at the time of exercise. The Committee also may permit payment through the tender of Shares that are already owned by the participant, or by any other means that the Committee determines to be consistent with the purpose of the Equity Plan. Any taxes required to be withheld must be paid by the participant at the time of exercise. However, the Committee has the discretion to permit participants to defer delivery of option exercise proceeds and thus defer any required withholding, but has not done so to date.

Stock Appreciation Rights. SARs are awards that grant the participant the right to receive the value of (1) the number of Shares exercised, times (2) the amount by which the market price of our Shares exceeds the exercise price. The exercise price cannot be less than 100% of the stock’s fair market value on the grant date. Thus, a participant will be able to profit from an SAR only if the fair market value of the Shares increases after the SAR is granted. The value received may be paid, in the discretion of the Committee, in cash, Shares having an equivalent value, or a combination thereof. An SAR may be exercised only if it becomes vested based on the vesting schedule established by the Committee. SARs expire under the same rules that apply to options and accelerate in the same circumstances; for example, upon termination of service due to retirement, death or disability, or if a change of control occurs. The number of Shares covered by each award of SARs will be determined by the Committee, but during any period of three consecutive fiscal years of PMI, no participant may be granted SARs covering more than 900,000 Shares. No SARs have been granted under the Equity Plan.

Restricted Stock. Awards of restricted stock are Shares that vest in accordance with the terms and conditions established by the Committee. The number of Shares of restricted stock granted to any employee or consultant will be determined by the Committee, but during any period of three consecutive fiscal years of PMI, no participant may be granted more than 400,000 Shares of restricted stock.

In determining whether an Award of restricted stock should be made, and/or the vesting schedule for any such Award, the Committee may impose whatever conditions to vesting as it determines to be appropriate; provided, however, that, except as to Awards of restricted stock that vest upon satisfaction of specified performance goals other than continued employment, Awards generally may not vest at a rate of more than one-third of the Shares each year. Notwithstanding the foregoing, if a participant terminates his or her service due to retirement, death or disability, or if a change of control occurs prior to the participant’s termination of service, his or her restricted stock would vest immediately. If a participant terminates his or her service for any other reason prior to an Award of restricted stock vesting, the Award is forfeited.

Performance Units, Performance Shares and Stock Units. Performance units, performance shares and stock units are Awards that will result in a payment of cash, Shares or a combination thereof. Such payment will be made to a participant only if performance goals and/or other vesting criteria (including, for example, continued employment) established by the Committee are achieved or the Awards otherwise vest. The applicable performance goals will be determined by the Committee, and may be applied on a company-wide, business unit or individual basis, as deemed appropriate in light of the participant’s specific responsibilities (see “Performance Goals” below for more information).

Awards that vest solely as a result of continued employment generally may vest as to no more than one-third of the covered Shares each year. In addition, regardless of the Award’s vesting schedule, if a participant terminates his or her service due to retirement, death or disability, or if a change of control occurs prior to the participant’s termination of service (as determined under the terms of the Equity Plan), 100% of any outstanding performance units, performance shares or stock units would be deemed to be earned and would be immediately payable to the participant, or, in cases where a participant has received a target Award of performance units or performance shares, 100% of the target amount immediately would vest.

During any period of three consecutive fiscal years of PMI, no participant may receive discretionary grants covering more than 400,000 performance units, performance shares or stock units.

Non-Employee Director Awards. Our non-employee directors receive quarterly, automatic, non-discretionary grants of stock units with an initial value of $4,000, subject to a quarterly limit of 2,500 units. The number of units granted depends on the fair market value of our common stock on the grant date, but each stock unit has an initial value equal to the fair market value of a Share on the grant date. Non-employee director grants of stock units vest on the fifth anniversary of the applicable grant date. However, if a non-employee director terminates his or her service on the Board for any reason, including on account of retirement, death, disability, resignation or non-reelection to the Board, his or her grant will vest immediately. In addition, a non-employee director may elect to defer the payout of his or her stock units in accordance with procedures established by the Committee.

Performance Goals. Under the Equity Plan, the Committee has the discretion to make one or more performance goals applicable to a participant with respect to an Award from among the following: adjusted book value, book value, brand management, business quality, capital, cash flow, cash operating earnings, combined ratio, customer satisfaction, earnings, equity in the earnings of unconsolidated subsidiaries, expense ratio, incurred losses, loss ratio, market share, net income, operating income, new insurance written, operating cash flow, paid claims, premiums, price to book value ratio, price to earnings ratio, ratings, return on average assets, return on average equity, return on revenue, revenue, risk in force, total shareholder return, and value added (as such terms are defined in the Bonus Plan). The performance goals listed are expanded from the current version of the Equity Plan, and will be effective upon stockholder approval of the Equity Plan, by the addition of adjusted book value, book value, brand management, business quality, capital, combined ratio, customer satisfaction, incurred losses, paid claims, and ratings. In addition, current performance goals of net operating income and

return on sales will be replaced with operating income and return on revenue in the Equity Plan if approved by stockholders. The performance goals may differ from participant to participant and from Award to Award. Any criteria used may be measured, as applicable, (1) in absolute terms, (2) in relative terms (including, but not limited to, passage of time and/or against other companies or financial metrics), (3) on a per-share or share per capita basis, (4) against the performance of PMI as a whole or a segment or products of PMI, and/or (5) on a pre-tax or after-tax basis.

Awards to be Granted to Certain Individuals and Groups. The number of Awards (if any) that an employee or consultant may receive under the Equity Plan is in the discretion of the Committee and therefore cannot be determined in advance. Our executive officers have an interest in this proposal because they are eligible to receive discretionary Awards under the Equity Plan. Our non-employee directors have an interest in this proposal because they are automatically granted Awards of stock units with a pre-determined value for each quarter that they serve on our Board. Our non-employee directors are not eligible to receive discretionary Awards under the Equity Plan. To date, stock options, restricted stock, stock units and performance shares have been granted under the Equity Plan.

The following table sets forth, for 2008 and 2009 through March 18, 2009, (a) the total number of Shares subject to options granted under the Equity Plan, (b) the per Share exercise price of such options, (c) the total number of stock units granted under the Equity Plan, and (d) the dollar value of such stock units based on $ 0.61 per unit, the last reported trade price for Shares on March 18, 2009:

Limited Transferability of Awards. Awards granted under the Plan generally may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the applicable laws of descent and distribution. However, participants may, in a manner specified by the Committee, transfer nonqualified stock options by bona fide gift (1) to a member of the participant’s immediate family, (2) to a trust or other entity for the sole benefit of the member(s) of the participant’s and/or his or her immediate family, (3) to a partnership, limited liability company or other entity whose members are the participant and/or his or her immediate family, or (4) to a tax-qualified not-for-profit organization. Additionally, the Committee, in its discretion, may permit a participant to transfer an Award to an individual or entity other than PMI.

Change of Control. In the event of a change in control (as defined in the Equity Plan) that occurs prior to a participant’s termination of service, the right to exercise each stock option then outstanding shall accrue as to one hundred percent (100%) of the Shares subject to such stock options, all outstanding Shares of restricted stock shall be one hundred percent (100%) vested in the participant, and all outstanding performance units, performance shares and stock units shall be deemed to be earned and shall be immediately payable to the participant, and, with respect to target-based vesting of performance units or Shares, one hundred percent (100%) of the target amount shall vest.

The following paragraphs are a summary of the general federal income tax consequences to U.S. taxpayers and PMI of Awards granted under the Equity Plan as of the date of this Proxy Statement. We strongly encourage recipients of Awards to consult their tax, financial, or other advisors regarding the tax treatment of such Awards.

Nonqualified Stock Options and Stock Appreciation Rights. A nonqualified option is an option that does not qualify for the tax treatment available under Section 422 of the Code. No taxable income is recognized when a nonqualified stock option or a stock appreciation right is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the Shares on the exercise date over the exercise price. Any additional gain or loss recognized upon any later disposition of the Shares is capital gain or loss.

All stock options granted under the Revised Plan and its predecessors have been made at an exercise price equal to one hundred percent (100%) of the fair market value on the date of grant. However, as a result of Section 409A, if it is determined that any nonstatutory stock options and stock appreciation rights were granted with an exercise price below the fair market value of the underlying stock or with a deferral feature, they may be taxable to the recipient in the year of vesting in an amount equal to the difference between the then fair market value of the underlying stock and the exercise price of such Awards and may be subject to an additional 20% federal income tax plus penalties and interest. In addition, during each subsequent tax year (until the option is exercised or terminates), the option may be subject to additional annual income and penalty taxes, plus interest charges, on any increase in value of the underlying stock. Finally, certain states, such as California, have adopted similar tax provisions.

Incentive Stock Options. An incentive stock option qualifies for the tax treatment available under Section 422 of the Code. No taxable income is reportable when an incentive stock option is granted or exercised (except for purposes of the alternative minimum tax, in which case taxation is the same as for nonqualified stock options). If the participant exercises the option and then later sells or otherwise disposes of the Shares more than two years after the grant date and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed as capital gain or loss. If the participant exercises the option and then later sells or otherwise disposes of the Shares before the end of the two- or one-year holding periods described above, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the Shares on the exercise date (or the sale price, if less) minus the exercise price of the option.

Restricted Stock. Unless a participant elects otherwise, generally no taxable income is reportable upon a grant of restricted stock. Instead, the participant will recognize ordinary income at the time of vesting equal to the fair market value (on the vesting date) of the Shares received minus any amount paid for the Shares. Any additional gain or loss recognized upon later disposition of the Shares is capital gain or loss.

Performance Units, Performance Shares and Stock Units. Generally, no taxable income is reportable when an Award of performance units, performance shares, or stock units is granted. Instead, the participant will recognize ordinary income at the time of payout, equal to the fair market value (on the payout date) of the Shares or cash received. If the payout is in the form of Shares, any additional gain or loss recognized upon later disposition of the Shares is capital gain or loss.

Deferred Payout. A participant who defers the payout of an Award or the delivery of proceeds payable upon an Award exercise will recognize ordinary income at the time of payout in the same amounts as described above. If the participant receives Shares, any additional gain or loss recognized upon later disposition of the Shares is capital gain or loss.

Section 409A. Code Section 409A, which was added by the American Jobs Creation Act of 2004, provides certain new requirements on non-qualified deferred compensation arrangements. Awards granted with a deferral feature will be subject to the requirements of Section 409A, including discount stock options and stock appreciation rights discussed above. If an Award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that Award may recognize ordinary income on the amounts deferred under the Award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an Award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation. Some states may also apply a penalty tax (for instance, California imposes a 20% penalty tax in addition to the 20% federal penalty tax).

Tax Effect for PMI. PMI generally will be entitled to a tax deduction in connection with an Award under the Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, the exercise of a nonqualified stock option). Special rules limit the deductibility of compensation paid to our Chief Executive Officer (i.e., our principal executive officer) and to each of our three other most highly compensated executive officers for the taxable year (other than the principal financial officer). Under Section 162(m) of the Code, the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1,000,000. However, PMI can preserve the deductibility of certain compensation in excess of $1,000,000 if the conditions of Section 162(m) are met. These conditions include stockholder approval of the Equity Plan, setting limits on the number of Awards that any individual may receive and for Awards other than stock options, establishing performance criteria that must be met before the Award actually will vest or be paid. The Equity Plan has been designed to permit the Committee to grant Awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m), thereby permitting PMI to continue to receive a federal income tax deduction in connection with such Awards.

The Board generally may amend or terminate the Equity Plan at any time and for any reason. However, PMI will obtain stockholder approval of any amendment to the extent required by applicable law, regulation or rule, including the rules of the New York Stock Exchange. PMI also will seek stockholder approval of material amendments (as determined by the Committee), even if PMI would not otherwise be required to do so. Also, without further stockholder approval, no incentive stock options may be granted after February 24, 2019.

We believe strongly that the approval of the Amended and Restated Equity Incentive Plan is essential to the Company’s success. Awards such as those provided under the Equity Plan constitute an important incentive and help us to attract, motivate and retain people whose skills and performance are critical to our success. Our employees and directors are our most important asset. We strongly believe that the Equity Plan is vital to our ability to motivate and retain our outstanding and highly skilled individuals.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO AMEND AND RESTATE THE EQUITY INCENTIVE PLAN.

There were no reportable related person transactions. The Board of Directors has adopted a written policy for the review of transactions with related persons. The policy requires the Governance and Nominating Committee’s review, approval or ratification of any transactions between PMI and related persons. The policy defines “related person” to include directors, nominees for director, executive officers, holders of more than 5% of PMI’s outstanding common stock and members of their immediate families. In deciding whether to approve, ratify or deny a transaction, the Committee reviews all the relevant facts of a transaction and determines whether a given transaction is consistent with the best interests of PMI and its stockholders, applying the following factors, among others:

In April 2008, PMI and certain of our current and former executive officers and directors were named in two putative shareholder derivative suits; the first, filed in the United States District Court for the Northern District of California, Case No. CV 082046 (The Port Authority of Allegheny Retirement and Disability Allowance Plan for Employees Represented by Local 85 of the Amalgamated Transit Union v. L. Stephen Smith, W. Roger Haughton, David H. Katkov, Donald P. Lofe, Jr., Mariann Byerwalter, Dr. James C. Castle, Carmine Guerro, Wayne E. Hedien, Louis G. Lower, II, Raymond L. Ocampo, Jr., John D. Roach, Kenneth T. Rosen, Steven L. Scheid, José H. Villarreal, Mary Lee Widener, Ronald H. Zech, and The PMI Group, Inc., Nominal Defendant), and the second suit, filed in the Superior Court of the State of California, County of Contra Costa, Case No. C 08-01068 (Jorge Torres, Derivatively on Behalf of The PMI Group, Inc. v. L. Stephen Smith, Victor J. Bacigalupi, Bradley M. Shuster, Joanne M. Berkowitz, David H. Katkov, Lloyd A. Porter, Daniel L. Roberts, Thomas H. Jeter, Donald P. Lofe, Jr., Kenneth T. Rosen, John D. Roach, James C. Castle, Ronald H. Zech, Wayne E. Hedien, Mary Lee Widener, and Raymond L. Ocampo), respectively. These derivative complaints assert breach of fiduciary duty for improper financial reporting, insider trading, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment and violations of California statutes; and seek, among other relief, unspecified damages, treble damages under California statutes, equitable and injunctive relief, restitution, and reasonable attorneys’ fees and costs. Both actions have been stayed by stipulation of the parties and court orders based on the stipulations until completion of the motion to dismiss phase of a consolidated putative class action securities lawsuit that was the subject of a consolidated complaint filed in the United States District Court for the Northern District of California on September 4, 2008 entitled In re The PMI Group, Inc. Securities Litigation. Each of the defendants denies any wrongdoing and intends to vigorously defend the actions.

Pursuant to the provisions of PMI’s bylaws and applicable indemnification agreements, expenses of defense have been advanced on behalf of the individual defendants. See Directors’ Compensation and Benefits and Compensation Discussion and Analysis, above, for a description of indemnification agreements between PMI and its directors and executive officers.

The Board of Directors does not know of any matters to be acted upon at the Annual Meeting except as specified in the Notice of Annual Meeting of Stockholders. However, as to any other business that may properly come before the Annual Meeting, it is intended that proxies, in the form enclosed, will be voted in respect thereof in accordance with the judgment of the persons voting such proxies in consultation with the Board of Directors.

Stockholders are entitled to present proposals for action at a forthcoming stockholders’ meeting if they comply with the requirements of our bylaws and the proxy rules promulgated by the SEC. Proposals of stockholders intended for presentation at the 2010 Annual Meeting must be received by PMI for inclusion in its proxy statement and form of proxy relating to that meeting by December 3, 2009. Such proposals should be sent in writing by certified mail to the Secretary of PMI at PMI Plaza, 3003 Oak Road, Walnut Creek, California 94597. Faxed proposals will not be accepted.

In accordance with our bylaws, in order to be properly brought before the 2010 Annual Meeting, a stockholder’s notice of the matter the stockholder wishes to present must be delivered to the Secretary of PMI not less than 90 days or more than 120 days prior to the first anniversary of the date of this year’s Annual Meeting. As a result, any notice given by or on behalf of a stockholder pursuant to these provisions of our bylaws must be received by PMI not before January 20, 2010, nor later than February 20, 2010, to be timely for consideration at the 2010 Annual Meeting. In addition, such proposals and nominations must contain certain information as set forth in our bylaws. You may request a copy of our bylaws by submitting a request in writing to the Secretary of PMI. Proposals and nominations should be sent in writing by certified mail to the Secretary of PMI at PMI Plaza, 3003 Oak Road, Walnut Creek, California 94597. Faxed proposals or nominations will not be accepted.

WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.

1.1 Background. The Plan permits the grant of Options, Restricted Stock, Performance Units, Performance Shares, Stock Units and Stock Appreciation Rights. The terms of the Plan, as in effect prior to , 2009, shall govern any outstanding Awards granted prior to , 2009.

1.2 Purpose of the Plan. The Plan is intended to increase incentives and to encourage Share ownership on the part of eligible employees of the Company and its Affiliates, consultants who provide significant services to the Company and its Affiliates, and directors of the Company who are employees of neither the Company nor any Affiliate. 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.

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

2.3 “Award” means, individually or collectively, a grant under the Plan of Nonqualified Stock Options, Incentive Stock Options, Restricted Stock, Performance Units, Performance Shares, Stock Units, Stock Appreciation Rights or cash.

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

The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the 1934 Act) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 1934 Act) of twenty percent (20%) or more of either (i) the then outstanding Shares (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 2.6. 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 1934 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

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

Consummation by the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another entity (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 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

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 2.6, 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 Compensation Committee of the Board shall constitute the Committee.

2.9 “Company” means The PMI Group, Inc., a Delaware corporation, or any successor thereto and any Affiliate to the extent required.

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

2.11 “Deferred Unit Compensation Account” means an account established in the name of the Participant on the books and records of the Company pursuant to Section 8.5.

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

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

2.16 “Fair Market Value” means the closing market price per Share, as quoted in the New York Stock Exchange Composite Transactions Index on the relevant date, or if there were no sales on such date, the closing market price per Share on the nearest day after the relevant date, as determined by the Committee.

2.18 “Grant Date” means, with respect to a particular Award, the date on which the Award was granted. In the case of Awards granted to Employees and Consultants, 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.

2.19 “Incentive Stock Option” means an option to purchase Shares that 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 that is not intended to be an Incentive Stock Option.

2.22 “Option” means an Incentive Stock Option or a Nonqualified Stock Option.

2.23 “Participant” means an Employee, Consultant or Non-employee Director 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 (each as defined in the Company’s Bonus Incentive Plan): (a) Adjusted Book Value, (b) Book Value, (c) Brand Management, (d) Business Quality, (e) Capital, (f) Cash Flow, (g) Cash Operating Earnings, (h) Combined Ratio, (i) Customer Satisfaction, (j) Earnings, (k) Equity in the Earnings of Unconsolidated Subsidiaries, (l) Expense Ratio, (m) Incurred Losses, (n) Loss Ratio, (o) Market Share, (p) Net Income, (q) Operating Income, (r) New Insurance Written, (s) Operating Cash Flow, (t) Paid Claims, (u) Premiums, (v) Price to Book Value Ratio, (w) Price to Earnings Ratio, (x) Ratings, (y) Return on Average Assets, (z) Return on Average Equity, (aa) Return on Revenue, (bb) Revenue, (cc) Risk in Force, (dd) Total Shareholder Return, and (ee) Value Added. The Performance Goals may differ from Participant to Participant and from Award to Award. Any criteria used may be measured, as applicable, (i) in absolute terms, (ii) in relative terms (including, but not limited to, passage of time and/or against another company or companies), (iii) on a per-share basis, (iv) against the performance of the Company as a whole or a segment of the Company and/or (v) on a pre-tax or after-tax basis.

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 an Award granted to a Participant pursuant to Section 7.

2.27 “Performance Unit” means an Award 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. Notwithstanding any contrary provision of the Plan, each Period

of Restriction that expires solely as a result of continued service shall expire as to no more than 1/3 of the Shares covered by the applicable Award each year except as specifically provided in the Plan in the event of a Participant’s death, Disability, Retirement or a Change of Control.

2.29 “Plan” means The PMI Group, Inc. Amended and Restated Equity Incentive Plan, as set forth in this instrument and as heretofore or 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 fifty-five (55) with at least ten (10) Years of Vesting Service (as defined in 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. In the case of 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, and any future regulation amending, supplementing or superseding such regulation.

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 “Stock Appreciation Right” or “SAR” means an Award, granted alone or in connection with another Award that is described in Section 9.

2.36 “Stock Unit” means a bookkeeping entry initially representing an amount equivalent to the Fair Market Value of one Share, granted pursuant to Section 7 or Section 8 (as applicable). Stock Units represent an unfunded and unsecured obligation of the Company.

2.37 “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.

2.38 “Termination of Service” means (a) in the case of an Employee, a cessation of the employee-employer relationship between the Employee and the Company or an Affiliate for any reason, (as determined in accordance with section 409A(a)(2)(A)(i) of the Code and Treasury regulation section 1.409A-1(h)), including, but not by way of limitation, a termination by resignation, discharge, death, Disability, Retirement, or the disaffiliation of an Affiliate, but excluding any such termination where there is a simultaneous reemployment by the Company or an Affiliate; (b) in the case of a Consultant, a cessation of the service relationship between the Consultant and the Company or an Affiliate for any reason, (as determined in accordance with section 409A(a)(2)(A)(i) of the Code and Treasury regulation section 1.409A-1(h)), including, but not by way of limitation, a termination by resignation, discharge, death, Disability, 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, and (c) in the case of a Non-employee Director, a cessation of the Director’s service on the Board for any reason, (as determined in accordance with section 409A(a)(2)(A)(i) of the Code and Treasury regulation section 1.409A-1(h)), including, but not by way of limitation, a termination by resignation, death, Disability or retirement. For this purpose, the employment relationship shall be treated as continuing intact while the Participant is on military leave, sick leave or other bona fide leave of absence, except that if the period of such leave exceeds six (6) months and the Participant does not retain a right to reemployment under an applicable statute or by contract, then the

employment relationship shall be deemed to have terminated on the first day immediately following such six-month period. A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Company or an Affiliate.

2.39 “Three Year Period” means any period of three consecutive Fiscal Years. The first Three Year Period shall commence on January 1, 2004. Three Year Periods shall commence thereafter at the start of every Fiscal Year.

3.1 The Committee. The Plan shall be administered by the Committee. The Committee shall consist of two (2) or more Directors who shall be appointed from time to time by, and shall 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, Consultants and Non-employee Directors 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 as provided in Section 4.3, after an Award has been granted, the Committee shall not reduce the Exercise Price of the Award or permit the surrender or cancellation of the Award in exchange for (i) a substitute Award settled in Shares only having a lower Exercise Price, (ii) a different type of Award settled in Shares only, or (iii) any combination of (i) and (ii).

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, or (b) 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 thereof, 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.

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 is 18,000,000. Notwithstanding the preceding sentence, the aggregate number of Shares subject to Awards of Restricted Stock, Stock Units, Performance Units and Performance Shares granted under the Plan shall not exceed 6,000,000. Shares granted under the Plan may be either authorized but unissued Shares or treasury Shares.

4.2 Lapsed Awards. If an Award (or an Award under the Company’s Stock Plan for Non-Employee Directors (the “Director Plan”)) is settled in cash pursuant to its terms, or terminates, expires, or lapses for any reason, any Shares subject to such Award again shall be available to be the subject of an Award. Notwithstanding the foregoing, the following Shares may not again be made available for issuance as Awards under the Plan: (i) Shares not issued or delivered as a result of the net settlement of an outstanding Option; (ii) Shares used to pay the exercise price or withholding taxes related to an outstanding Award; or (iii) Shares repurchased on the open market with the proceeds of the exercise price of an Option. The following Shares shall not again be made available for issuance as Awards under the Plan: (i) Shares not issued or delivered as a result of the net settlement of an outstanding stock option, (ii) Shares used to pay the exercise price or withholding taxes related to an outstanding Award, or (iii) Shares repurchased on the open market with the proceeds of the option exercise price.

4.3 Adjustments in Awards and Authorized Shares. In the event of any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), merger, reorganization, consolidation, recapitalization, separation, liquidation, stock split, reverse stock split, split-up, spin-off, Share combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares, the Committee shall adjust the number and/or class of Shares which may be delivered under the Plan, the number, class, and/or price of Shares subject to outstanding Awards, and the numerical limits of Sections 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. Notwithstanding the preceding, the number of Shares subject to any Award always shall be a whole number.

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 Three Year Period, no Participant shall be granted Options covering more than 900,000 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 (satisfactory to the Committee) 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 also 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 of 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.

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

(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 5.8.4 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 the provisions of Section 5.4.1, if a Participant 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 5.8.4 regarding Incentive Stock Options and subject to Section 5.4.1(a) providing that the maximum term of an Option may not extend beyond ten (10) years.

5.5 Exercisability of Options. Options 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.

5.6 Payment. Options shall be exercised by the Participant’s delivery of a written notice of exercise (satisfactory to the Committee) to the Secretary of the Company (or its designee), setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares to be purchased.

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.

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.

5.8.1 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.

5.8.2 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 a later exercise), the portion so exercised shall be deemed a Nonqualified Stock Option. No Incentive Stock Option may be exercised more than one (1) year after the Participant’s Termination of Service by reason of Disability, unless (i) the Participant dies during such one-year period, and (ii) the Award Agreement or the Committee permit later exercise).

5.8.3 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.

5.8.4 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 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.

5.9 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.

5.10 Exchange for Stock Appreciation Rights. The Committee may institute a program whereby outstanding Options are surrendered or cancelled in exchange for a grant of SARs having a value less than or equal to the value of the surrendered or cancelled Options as determined by the Committee; provided that the exercise price of SARs granted hereunder shall not be less than the exercise price of the related surrendered Options Participation in such a program may, in the discretion of the Committee, be mandatory with respect to any particular Participant or any particular outstanding Option. Notwithstanding any contrary provision of the Plan, any SARS granted in exchange for the surrender or cancellation of Options shall (a) be payable solely in Shares, (b) vest at a rate no faster then the vesting schedule of the surrendered or cancelled Option and (c) expire no later than the date on which the surrendered or cancelled Option would have expired had the Option remained outstanding.

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 Three Year Period, no Participant shall be granted more than 400,000 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.

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.

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.

7.1 Grant of Performance Units, Performance Shares and Stock Units. Performance Units, Performance Shares and Stock Units 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, Performance Shares and Stock Units granted to any Participant, provided that during any Three Year Period, no more than 400,000 Performance Units, Performance Shares or Stock Units 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 and Stock Unit 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, Performance Shares or Stock Units that will be paid out to the Participants. The time period during which the performance objectives must be met shall be called the “Performance Period.” Each Award of Performance Units, Performance Shares or Stock Units 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. Notwithstanding any contrary provision of the Plan, Awards granted under this Section 7 that vest solely as a result of continued employment shall vest as to no more than 1/3 of the covered Shares each year except as specifically provided in the Plan in the event of a Participant’s death, Disability, Retirement or a Change of Control.

7.3.1 General Performance Objectives. The Committee may set performance objectives based upon the achievement of Company-wide, business unit or individual goals (including, but not limited to, continued employment), 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, Performance Shares, or Stock Units as “performance-based compensation” under Section 162(m) of the Code, the Committee, in its discretion, may determine that the performance objectives applicable to the

Performance Units, Performance Shares, or Stock Units 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 Award to qualify as “performance-based compensation” under Section 162(m) of the Code. In granting Performance Units, Performance Shares, or Stock Units that 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 Award under Section 162(m) of the Code (e.g., in determining the Performance Goals).

7.4 Earning of Performance Units, Performance Shares and Stock Units. After the applicable Performance Period has ended, the Participant shall be entitled to receive a payout of the number of Performance Units, Performance Shares or Stock Units 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, Performance Share or Stock Unit, the Committee, in its sole discretion, may reduce or waive any performance objectives for Award, except with respect to Awards that 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, Performance Shares or Stock Units 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, Performance Shares or Stock Units 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 foregoing, if Participant has elected to defer payment pursuant to Section 7.5 and such applicable Award Agreement, then such payment will not be payable immediately, but will be delayed until the Deferred Payment Date, as such term is defined in the applicable Award Agreement.

7.5 Form and Timing of Payment. Except as described below, payment of earned Performance Units, Performance Shares or Stock Units 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. In addition, 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 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, which rules and procedures shall at all times comply with the requirements of Section 409A of the Code.

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

The provisions of this Section 8 are applicable only to Stock Units granted to Non-employee Directors. The provisions of Section 7 are applicable to Stock Units granted to Employees and Consultants.

8.1 Grant of Stock Units. On the first business day on or after April 15, July 15, October 15 and January 15 of each year, each individual then serving as a Non-employee Director automatically shall be granted Stock Units with an initial value of $4,000, each Stock Unit valued at the Fair Market Value per Share, but in no event shall any Non-employee Director receive more than 2,500 Stock Units in any calendar quarter.

8.2.1 Award Agreement. Each Award granted pursuant to this Section 8 shall be evidenced by an Award Agreement (satisfactory to the Committee), which shall be executed by the Participant and the Company.

8.2.2 Vesting. Each Award granted pursuant to this Section 8 shall vest upon the first to occur of the following events:

(b) Cessation of a Participant’s service as a Non-employee Director for any reason, including, but not limited to, death, Disability, retirement, resignation or non-reelection to the Board.

8.3 Dividends and Other Distributions. Any dividends or other distributions paid on the Shares underlying an Award granted under this Section 8 automatically shall be deemed reinvested in Stock Units (the “Dividend Stock Units”). Dividend Stock Units shall be subject to the same terms and conditions as the underlying Award, including any deferral election made pursuant to Section 8.5

8.4 Payment After Vesting. Except as described in Section 8.5, Stock Units that vest shall be paid in full in Shares (with the balance, if any, in cash) as soon as practicable after the date of vesting.

8.5.1 Election to Defer Proceeds. A Participant who is eligible to defer income under the Company’s 2005 Directors’ Deferred Compensation Plan may elect, at the discretion of the Committee, to defer receipt of the proceeds of an Award of Stock Units that would otherwise be delivered to the Participant under this Section 8. Any such deferral elections shall be subject to such rules and procedures as shall be determined by the Committee in its sole discretion, which rules and procedures shall at all times comply with the requirements of Section 409A of the Code.

Upon payment of the portion of an Award to which a deferral election applies, the Committee shall not have discretion as to the form of payment. Instead, the Award shall remain in the form of Stock Units, and the number of Stock Units in respect of which the Participant has made a deferral election shall be credited to a Deferred Unit Compensation Account on the date of deferral. A separate Deferred Unit Compensation Account shall be maintained with respect to each Participant and to each effective deferral election.

8.5.2 Form and Timing of Payment. Payment of deferred 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 8.5.1 is made. 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.

8.5.3 Provisions of the 2005 Directors’ Deferred Compensation Plan May Govern. To the extent determined by the Committee, any amount deferred under this Section 8.5, and any Deferred Unit Compensation Account, may be treated and held as a portion of the Company’s 2005 Directors’ Deferred Compensation Plan, in which event the provisions of such plan shall govern the operation and administration of amounts deferred under this Section 8.5 and credited to Deferred Unit Compensation Accounts.

9.1 Grant of SARs. Subject to the terms and conditions of the Plan, a SAR 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.

9.1.1 Number of Shares. The Committee shall have complete discretion to determine the number of SARs granted to any Participant, provided that during any Three Year Period, no Participant shall be granted SARs covering more than 900,000 Shares.

9.1.2 Exercise Price and Other Terms. The Committee, subject to the provisions of the Plan, shall have complete discretion to determine the terms and conditions of SARs granted under the Plan. Notwithstanding the foregoing, the exercise price of an SAR may not be less than one hundred percent (100%) of the Fair Market Value of a Share on the Grant Date.

9.2 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement that shall specify the exercise price, the term of the SAR, the conditions of exercise, and such other terms and conditions as the Committee, in its sole discretion, shall determine.

9.3 Expiration of SARs. An SAR granted under the Plan shall expire upon the date determined by the Committee, in its sole discretion, and set forth in the Award Agreement. Notwithstanding the foregoing, the rules of Section 5.4 also shall apply to SARs, providing that the maximum term of an SAR may not extend beyond ten (10) years.

9.4 Exercisability of SARs. An SAR 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 SAR is granted, the Committee, in its sole discretion, may accelerate the exercisability of the SAR. Additionally, the rules of Section 5.5.1 and 5.5.2 (providing accelerated vesting upon certain events) also shall apply to SARs.

9.5 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:

(a) The difference between the Fair Market Value of a Share on the date of exercise over the exercise price; times

(b) The number of Shares with respect to which the SAR is exercised. At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof.

10.1.1 Participants Remain Unsecured Creditors. Participants have the status of general unsecured creditors of the Company with respect to their Deferred Unit Compensation Accounts (if any), and such accounts constitute a mere promise by the Company to make payments with respect thereto.

10.1.2 Nontransferability of Deferred Unit Compensation Accounts. A Participant’s right to benefit payments with respect to their Deferred Unit Compensation Accounts (if any) 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.

10.2 No Effect on Employment or Service. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Affiliate to terminate any Participant’s employment or service at any time, with or without cause. For purposes of the Plan, the 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 or service with the Company and its Affiliates is on an at-will basis only.

10.3 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 any future Award.

10.4 Indemnification. Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from (a) any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan or any Award 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.

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

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

10.7 Limited Transferability 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 10.6. 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, (a) the Participant may transfer a Nonqualified Stock Option by bona fide gift and not for any consideration, to (i) a member of the Participant’s immediate family, (ii) a trust or other entity for the exclusive benefit of the Participant and/or a member or members of the Participant’s immediate family, (iii) 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 (iv) a tax-qualified, not for profit organization, and (b) the Participant may, if the Committee (in its discretion) so permits, transfer an Award to an individual or entity other than the Company. Any such transfer shall be made in accordance with such procedures as the Committee may specify from time to time.

10.8 No Rights as Stockholder. Except to the limited extent provided in Sections 6.6, 6.7 and 8.3, 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).

10.9 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.

10.10 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 so withheld shall not exceed the amount determined by using the minimum federal, state, local or foreign jurisdiction statutory withholding 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.

11.1 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; provided, however, that the Company will obtain stockholder approval of any amendment to the extent necessary to comply with applicable law, regulation or rule (including the rules of the New York Stock Exchange). Additionally, and notwithstanding the foregoing, any material (as determined in the sole discretion of the Committee) amendment to the Plan will be submitted to the Company’s stockholders for approval. 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.

11.2 Duration of the Plan. The Plan shall become effective as of the date specified herein, and subject to Section 11.1 (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 February 24, 2019.

12.1 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.

12.2 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.

12.3 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.

12.4 Governing Law. To the extent applicable, the Plan and Award Agreements are intended to comply with the provisions of Section 409A of the Code. Notwithstanding any contrary provision of the Plan or any Award

Agreements, the Plan and Award Agreements shall be construed, administered and enforced in a manner that is consistent with such intent. The Plan and all Award Agreements also 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.

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

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

YOUR VOTE IS IMPORTANT. PLEASE SIGN AND DATE THE OTHER SIDE OF THIS CARD. IF YOU ARE A STOCKHOLDER OF RECORD, YOU MAY USE THE TOLL-FREE TELEPHONE NUMBER SET FORTH ON THE REVERSE SIDE OF THIS PROXY CARD TO AUTHORIZE A PROXY TO VOTE YOUR SHARES. YOU WILL REDUCE PMI’S EXPENSE IN SOLICITING PROXIES IF YOU AUTHORIZE A PROXY TO VOTE BY TELEPHONE.

The undersigned, revoking any proxy previously given, hereby appoints L. Stephen Smith and Andrew D. Cameron, or either of them, as Proxies, with full power of substitution, to represent and vote all shares of common stock which the undersigned would be entitled to vote if personally present at the Annual Meeting of Stockholders to be held on May 21, 2009 at 9:00 a.m. Pacific time at PMI Plaza, 3003 Oak Road, Walnut Creek, California, or any adjournments or postponements thereof as designated on the reverse side, and upon any and all matters which may properly be brought before the Annual Meeting or any adjournments or postponements thereof. Receipt of the 2009 Notice of Annual Meeting of Stockholders and Proxy Statement is hereby acknowledged.

This proxy, when properly executed, will be voted in the manner directed by you. If you do not give any direction, this proxy will be voted “FOR ALL NOMINEES” for Proposal 1 and “FOR” Proposals 2 and 3, and in the discretion of the Proxies upon such other matters as may properly come before the Annual Meeting.

i Please detach along perforated line and mail in the envelope provided IF you are not voting via telephone. i


Name	Fees Earned or Paid in Cash ($)		Stock Awards ($)¹		Option Awards ($)²		All Other Compensation ($)³		Total ($)
Mariann Byerwalter (former director)⁴	$	70,000	$	100,850	$	—	$	—	$	170,850
Dr. James C. Castle (former director)⁵		26,250		50,567		—		—		76,817
Carmine Guerro		85,000		100,850		—		—		185,850
Wayne E. Hedien		85,000		100,850		—		—		185,850
Louis G. Lower II		70,000		100,850		—		—		170,850
Raymond L. Ocampo Jr.		60,000		100,850		—		—		160,850
John D. Roach		70,000		100,850		—		—		170,850
Dr. Kenneth T. Rosen (former director)⁵		22,500		50,567		—		—		73,067
Steven L. Scheid (former director)⁶		70,000		100,850		—		—		170,850
José H. Villarreal		60,000		100,673		—		—		160,673
Mary Lee Widener		70,000		100,850		—		—		170,850
Ronald H. Zech		77,500		100,850		—		—		178,350


Grant Date	Number of Units	Grant Date Fair Value (in Accordance with FAS 123R)
January 15, 2008	2,976	$	25,000
April 15, 2008	2,941	$	25,000
July 15, 2008	15,924	$	25,000
October 15, 2008	11,628	$	25,000


Beneficial Owner	Number of Shares	Percentage of Class (%)
Old Republic International Corporation² 307 North Michigan Avenue Chicago, IL 60601	9,189,000	11.2	%

FMR LLC³ 82 Devonshire Street Boston, Massachusetts 02109	9,021,057	11.0	%

Barclays Global Investors, NA⁴ 400 Howard Street San Francisco, CA 94105	5,964,924	7.3	%

First Manhattan Co.⁵ 437 Madison Avenue New York, NY 10022	5,811,753	7.1	%

Fir Tree Value Master Fund, L.P.⁶ c/o Admiral Administration Ltd. Admiral Financial Center, 5^th Floor 90 fort Street, Box 32021 SMB Grand Cayman, Cayman Islands	4,327,500	5.3	%

Directors and Nominees
Carmine Guerro⁷	58,994	*
Wayne E. Hedien⁸	102,449	*
Louis G. Lower II⁹	71,599	*
Raymond L. Ocampo Jr.¹⁰	88,399	*
John D. Roach¹¹	80,349	*
L. Stephen Smith (and CEO)¹²	802,853	*
José H. Villarreal¹³	43,888	*
Mary Lee Widener¹⁴	71,476	*
Ronald H. Zech¹⁵	84,799	*

Other Named Executive Officers
Donald P. Lofe, Jr.¹⁶	282,190	*
David H. Katkov¹⁷	253,254	*
Lloyd A. Porter¹⁸	231,924	*
Joanne M. Berkowitz¹⁹	126,997	*
Bradley M. Shuster²⁰	393,373	*
Daniel L. Roberts²¹	256,573	*

All Directors, Nominees and Executive Officers as a Group
(16 persons including those named above)²²	2,949,117	3.5	%


Name	Number of Shares Subject to Option	Restricted Stock Units
Mr. Smith	250,000	125,000
Mr. Lofe	110,000	55,000
Mr. Katkov	110,000	55,000
Mr. Porter	80,000	40,000
Ms. Berkowitz	80,000	40,000


Name	Threshold		Target		Maximum
Mr. Smith	37.50	%	75	%	150	%
Mr. Lofe	31.25	%	62.5	%	125	%
Mr. Katkov	31.25	%	62.5	%	125	%
Mr. Porter	27.50	%	55	%	110	%
Ms. Berkowitz	27.50	%	55	%	110	%


		Page

Proxy Statement		1

Item 1: Election of Directors		3

Corporate Governance		5

Directors’ Compensation and Benefits		8

Security Ownership of Certain Beneficial Owners and Management		11

Section 16(a) Beneficial Ownership Reporting Compliance		14

Executive Compensation		14

• Compensation Discussion and Analysis		14

• Compensation Committee Report		26

• Summary Compensation Table		27

• Grants of Plan-Based Awards in 2008		30

• Outstanding Equity Awards at 2008 Fiscal Year End		31

• Option Exercises and Stock Vested in 2008		33

• 2008 Pension Benefits Table		34

• 2008 Nonqualified Deferred Compensation Table		36

• Potential Payments Upon Termination Unrelated to a Change of Control		37

• Potential Payments in Connection with a Change of Control		38

• Equity Compensation Plan Information		41

Compensation Committee Interlocks and Insider Participation		41

Audit Committee Report		42

Item 2: Ratification of Appointment of Independent Registered Public Accounting Firm		43

Item 3: Approval of the PMI Amended and Restated Equity Incentive Plan		44

Certain Relationships and Related Transactions		51

Legal Proceedings		51

Other Matters		52

Stockholder Proposals for the 2010 Annual Meeting		52

Appendix A: The PMI Group, Inc. Amended and Restated Equity Incentive Plan		A-1


	2008 Non-Employee Director Annual Cash Retainer Fees
Board Members	$	60,000
Chair of the Audit Committee	$	15,000
Each Chair of the Compensation, Governance and Nominating, and Investment and Finance Committees	$	10,000
Presiding Director	$	15,000
Members of the Audit Committee	$	10,000


• HCC Insurance Holdings, Inc. • IndyMac Bancorp, Inc. • MBIA Inc. • MGIC Investment Corporation • Old Republic International Corporation • Radian Group Inc. • StanCorp Financial Group, Inc.		• Ambac Financial Group Inc. • Assured Guaranty Ltd. • Cincinnati Financial Corporation • CIT Group, Inc. • Everest Re Group Ltd • First American Corp. • Genworth Financial


• Alleghany Corporation • Assured Guaranty Ltd. • Astoria Financial Corporation • Cincinnati Financial Corporation • Erie Indemnity Company • Guaranty Financial Group Inc. • Harleysville Group Inc. • HCC Insurance Holdings, Inc. • LandAmerica Financial Group, Inc. • MGIC Investment Corporation		• The Navigators Group, Inc. • Old Republic International Corporation • People’s United Financial, Inc. • Radian Group Inc. • RLI Corp. • Safety Insurance Group, Inc. • Selective Insurance Group, Inc. • Washington Federal, Inc. • Zenith National Insurance Corp.


Name and Principal Position	Year	Salary ($)		Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)¹		Change in Pension Value and Nonquali- fied Deferred Compen- sation Earnings ($)		All Other Compen- sation ($)		Total ($)
L. Stephen Smith	2008	$	830,000	$	0	$	903,855	$	482,320	$	0	$	752,438	$	40,738	$	3,009,351
Chairman of the Board, President, Chief Executive Officer and Chief Operating Officer	2007		800,000		0		462,183		2,473,784		0		1,295,855		122,395		5,154,217
	2006		649,583		0		462,183		1,342,969		968,419		881,957		170,816		4,475,927


Donald P. Lofe, Jr.	2008		440,000		0		298,066		419,821		266,000		110,240		56,883		1,591,010
Executive Vice President, Chief Financial Officer and Chief Administrative Officer	2007		425,000		117,000		231,092		629,789		0		101,826		59,563		1,564,270
	2006		390,000		0		231,984		379,501		380,250		90,715		80,259		1,552,709




David H. Katkov	2008		445,000		0		301,430		430,232		281,000		192,897		40,738		1,691,297
Executive Vice President and Chief Business Officer	2007		430,000		0		231,092		637,258		0		216,121		80,620		1,595,091
	2006		385,333		0		231,092		361,055		374,969		213,470		54,583		1,620,502


Lloyd A. Porter	2008		365,000		0		279,506		308,271		181,000		206,263		429,192		1,769,232
Executive Vice President and Chief Risk Officer	2007		350,000		65,000		231,092		467,089		0		211,961		395,783		1,720,925
	2006		315,000		0		231,092		293,197		348,390		99,854		376,539		1,664,072


Joanne M. Berkowitz	2008		350,000		0		44,544		280,585		173,000		78,066		40,738		966,933
Executive Vice President and Chief Insurance Operations Officer	2007		315,000		40,000		0		421,558		0		62,502		64,049		903,109
	2006		275,000		0		0		252,666		250,250		52,373		89,548		919,837



Bradley M. Shuster	2008		481,990		0		805,604		635,266		0		1,345,050		411,258		3,679,168
Former President, International and Strategic Investments	2007		475,000		0		462,183		760,644		0		229,889		53,830		1,981,546
	2006		415,000		0		462,183		495,139		485,550		214,573		141,901		2,214,346


Daniel L. Roberts	2008		342,139		0		420,570		73,164		0		1,166,624		245,978		2,248,475
Former Executive Vice President and Chief Information Officer	2007		350,000		65,000		231,092		761,489		0		157,336		52,126		1,617,043
	2006		322,000		0		231,092		400,327		293,020		158,441		52,435		1,457,315


Name	401(k) Company Match		Financial Planning and Tax Preparation Services		Deferred Compensation Company Match		Auto Allowance		Severance Payments		Overseas Payments		Miscellaneous Perquisites
L. Stephen Smith	$	3,450	$	21,000	$	—	$	16,200	$	—	$	—	$	88
Donald P. Lofe, Jr.		3,450		21,000		14,114		16,200		—		—		2,119
David H. Katkov		3,450		21,000		—		16,200		—		—		88
Lloyd A. Porter		3,450		21,000		—		16,200		—		388,454		88
Joanne M. Berkowitz		3,450		21,000		—		16,200		—		—		88
Bradley M. Shuster		—		21,000		—		13,500		376,670		—		88
Daniel L. Roberts		—		21,000		—		13,500		211,390		—		88


Name	Grant Date¹	Estimated Possible Payouts Under Non-Equity Incentive Plan Awards²						All Other Stock Awards: Number of Shares of Stock or Units (#)	All Other Option Awards: Number of Securities Underlying Options (#)	Exercise or Base Price of Option Awards ($/Sh)		Grant Date Fair Value of Stock and Option Awards ($)
Name	Grant Date¹	Threshold ($)		Target ($)		Maximum ($)				Exercise or Base Price of Option Awards ($/Sh)		Grant Date Fair Value of Stock and Option Awards ($)
L. Stephen Smith	3/19/08	$	498,000	$	1,245,000	$	1,992,000	85,700			N/A	$	5.15
	3/19/08								171,400	$	5.25	$	2.81

Donald P. Lofe, Jr.	3/19/08		193,600		484,000		774,400	27,000			N/A	$	5.15
	3/19/08								54,000	$	5.25	$	2.81

David H. Katkov	3/19/08		204,700		511,750		818,800	28,200			N/A	$	5.15
	3/19/08								56,400	$	5.25	$	2.81

Lloyd A. Porter	3/19/08		131,400		328,500		525,600	19,500			N/A	$	5.15
	3/19/08								39,000	$	5.25	$	2.81

Joanne M. Berkowitz	3/19/08		119,000		297,500		476,000	18,000			N/A	$	5.15
	3/19/08								36,000	$	5.25	$	2.81

Bradley M. Shuster	3/19/08		237,600		594,000		950,400	32,100			N/A	$	5.15
	3/19/08								64,200	$	5.25	$	2.81

Daniel L. Roberts	3/19/08		131,400		328,500		525,600	19,500			N/A	$	5.15
	3/19/08								39,000	$	5.25	$	2.81


Name	Option Awards							Stock Awards
Name	Grant Date	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)		Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)
L. Stephen Smith	2/17/2000	8,916		—	$	18.880	2/17/2010
	8/31/2000	9,500		—	$	30.770	2/18/2009
	2/6/2001	76,000		—	$	28.790	2/6/2011
	2/1/2002	5,628	*	—	$	35.710	2/18/2009
	2/19/2002	2,830	*	—	$	35.390	2/18/2009
	2/20/2002	60,000		—	$	35.210	2/20/2012
	2/19/2003	83,000		—	$	28.030	2/19/2013
	11/13/2003	20,497	*	—	$	37.800	2/18/2009
	2/18/2004	75,000		—	$	38.800	2/18/2014
	12/1/2004	7,167	*	—	$	41.390	2/18/2009
	2/16/2005	98,700		—	$	38.170	2/16/2015
	5/19/2005							50,000	$	97,500
	2/15/2006	66,667		33,333	$	43.150	2/15/2016
	2/22/2007	57,133		114,267	$	48.300	2/22/2017
	3/19/2008			171,400	$	5.250	3/19/2018	85,700	$	167,115

Donald P. Lofe, Jr.	1/6/2003	5,000		—	$	31.665	1/6/2013
	2/19/2003	39,200		—	$	28.030	2/19/2013
	2/18/2004	37,000		—	$	38.800	2/18/2014
	2/16/2005	50,075		—	$	38.170	2/16/2015
	5/19/2005							25,000	$	48,750
	2/15/2006	35,000		17,500	$	43.150	2/15/2016
	2/22/2007	18,000		36,000	$	48.300	2/22/2017
	3/19/2008			54,000	$	5.250	3/19/2018	27,000	$	52,650

David H. Katkov	2/20/2002	25,000		—	$	35.210	2/20/2012
	3/15/2002	472	*	—	$	37.380	2/18/2009
	2/19/2003	3,300		—	$	28.030	2/19/2013
	11/10/2003	2,696	*	—	$	38.460	2/18/2009
	1/29/2004	158	*	—	$	38.545	2/18/2009
	2/18/2004	35,700		—	$	38.800	2/18/2014
	2/16/2005	45,300		—	$	38.170	2/16/2015
	5/19/2005							25,000	$	48,750
	2/15/2006	33,333		16,667	$	43.150	2/15/2016
	2/22/2007	18,800		37,600	$	48.300	2/22/2017
	3/19/2008			56,400	$	5.250	3/19/2018	28,200	$	54,990


Name	Plan Name	Number of Years Credited Service (#)	Present Value of Accumulated Benefit ($)		Payments During Last Fiscal Year ($)
L. Stephen Smith	Retirement Plan	29.750	$	1,528,731	$	0
	SERP			4,770,762		0
Donald P. Lofe, Jr.	Retirement Plan	5.917		460,958		0
	SERP			0		0
David H. Katkov	Retirement Plan	16.417		1,025,618		0
	SERP			193,444		0
Lloyd A. Porter	Retirement Plan	25.833		803,178		0
	SERP			520,773		0
Joanne M. Berkowitz	Retirement Plan	7.667		289,315		0
	SERP			0		0
Bradley M. Shuster	Retirement Plan	13.417		0		1,448,874
	SERP			0		1,032,972
Daniel L. Roberts	Retirement Plan	11.083		0		1,506,755
	SERP			0		599,748


Name	Executive Contributions in Last FY ($)¹		Registrant Contributions in Last FY ($)²		Aggregate Earnings (Losses) in Last FY ($)³			Aggregate Withdrawals/ Distributions ($)		Aggregate Balance at Last FYE ($)
L. Stephen Smith	$	0	$	0	$	(870,107	)	$	0	$	474,085
Donald P. Lofe, Jr.		107,550		22,500		(179,359	)		0		113,668
David H. Katkov		0		0		(734,350	)		0		758,632
Lloyd A. Porter		61,916		0		(803,091	)		0		973,129
Joanne M. Berkowitz		37,269		0		(347,710	)		0		473,095
Bradley M. Shuster		0		0		(1,052,980	)		919,813		511,229
Daniel L. Roberts		21,665		0		(891,805	)		388,534		852,804


Name	Reason¹	Retirement Plan		SERP		Acceleration of Restricted Stock		Acceleration of Restricted Stock Units		Total
L. Stephen Smith	Involuntary NFC,* Voluntary or For Cause	$	1,995,938	$	5,041,458	$	0	$	167,115	$	7,204,511
	Death or Disability		1,995,938		5,041,458		97,500		167,115		7,302,011
	Early Retirement		1,995,938		5,041,458		0		167,115		7,204,511
	Normal Retirement		1,528,731		4,770,762		0		167,115		6,466,608

Donald P. Lofe, Jr.	Involuntary NFC,* Voluntary or For Cause		460,958		0		0		0		460,958
	Death or Disability		460,958		0		48,750		52,650		562,358

David H. Katkov	Involuntary NFC,* Voluntary or For Cause		1,025,618		193,444		0		0		1,219,062
	Death or Disability		1,025,618		193,444		48,750		54,990		1,322,802

Lloyd A. Porter	Involuntary NFC,* Voluntary or For Cause		803,178		520,773		0		0		1,323,951
	Death or Disability		803,178		520,773		48,750		38,025		1,410,726

Joanne M. Berkowitz	Involuntary NFC,* Voluntary or For Cause		289,315		0		0		0		289,315
	Death or Disability		289,315		0		0		35,100		324,415


Name	Reason	Cash Severance		Bonus		Incremental Increase in SERP		Acceleration of Restricted Stock		Acceleration of Restricted Stock Units		Health Premiums and Related Benefits		Outplacement		Excise Tax and Gross Up		Total
L. Stephen Smith	Good Reason or Involuntary NFC^*	$	5,395,257	$	968,419	$	5,873,212	$	97,500	$	167,115	$	52,939	$	25,000	$	5,804,155	$	17,088,600
	Cause						0		97,500		167,115								264,615
	Death, Disability, Voluntary, or Early or Normal Retirement				968,419		0		97,500		167,115								264,614

Donald P. Lofe, Jr.	Good Reason or Involuntary NFC^*		2,128,125		411,250		298,336		48,750		52,650		44,357		25,000		1,176,465		3,814,333
	Cause						0		48,750		52,650								101,400
	Death, Disability, Voluntary or Normal Retirement				411,250		0		48,750		52,650								234,400

David H. Katkov	Good Reason or Involuntary NFC^*		2,459,907		374,969		510,223		48,750		54,990		25,402		25,000		1,486,404		4,664,746
	Cause						0		48,750		54,990								103,740
	Death, Disability, Voluntary or Normal Retirement				374,969		0		48,750		54,990								244,240

Lloyd A. Porter	Good Reason or Involuntary NFC^*		1,784,825		348,930		291,986		48,750		38,025		45,421		25,000		1,093,155		3,312,778
	Cause						0		48,750		38,025								86,775
	Death, Disability, Voluntary or Normal Retirement				348,930		0		48,750		38,025								177,275

Joanne M. Berkowitz	Good Reason or Involuntary NFC^*		1,500,625		250,250		201,407		0		35,100		1,078		25,000		917,067		2,704,767
	Cause						0		0		35,100								35,100
	Death, Disability, Voluntary or Normal Retirement				250,250		0		0		35,100								121,600


Plan Category	Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights (a)	Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a) )¹ (c)
Equity compensation plans approved by security holders (i.e., Equity Incentive Plan, ESPP and 2005 Officer Deferred Compensation Plan)	5,846,683	$	36.82	2,204,969
Equity compensation plans not approved by security holders	N/A


Name of Individual or Group	Year	Number of Options Granted	Weighted Average Per Share Exercise Price		Number of Stock Units Granted	Aggregate Dollar Value of Stock Units Granted
L. Stephen Smith,	2009	250,000	$	.61	125,000	$	76,250
Chairman of the Board, President, Chief Executive Officer and Chief Operating Officer	2008	171,400	$	5.25	85,700		52,277

Donald P. Lofe, Jr.,	2009	110,000	$	.61	55,000		33,550
Executive Vice President, Chief Financial Officer and Chief Administrative Officer	2008	54,000	$	5.25	27,000		16,470

David H. Katkov,	2009	110,000	$	.61	55,000		33,550
Executive Vice President and Chief Business Officer	2008	56,400	$	5.25	28,200		17,202

Lloyd A. Porter,	2009	80,000	$	.61	40,000		24,400
Executive Vice President and Chief Risk Officer	2008	39,000	$	5.25	19,500		11,895

Joanne M. Berkowitz,	2009	80,000	$	.61	40,000		24,400
Executive Vice President and Chief Insurance Operations Officer	2008	36,000	$	5.25	18,000		10,980

Bradley M. Shuster,	2009	N/A		—	N/A		—
former President, International and Strategic Investments	2008	64,200	$	5.25	32,100		19,581

Daniel L. Roberts,	2009	N/A		—	N/A		—
former Executive Vice President and Chief Information Officer	2008	39,000	$	5.25	19,500		11,895

All current executive officers as a group (6 persons)	2009	680,000	$	.61	340,000		207,400
All current executive officers as a group (6 persons)	2008	356,800	$	5.25	196,400		119,804

All current directors who are not executive officers, as a group (8 persons)¹	2009	0		—	18,164		11,080
	2008	0		—	285,703		174,279

All employees who are not executive officers, as a group	2009	200,000	$	61	295,000		179,950
All employees who are not executive officers, as a group	2008	100,800	$	5.25	1,099,000		670,390


		Page
SECTION 1 BACKGROUND AND PURPOSE		A-1

1.1	Background	A-1
1.2	Purpose of the Plan	A-1

SECTION 2 DEFINITIONS		A-1

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


		Page
SECTION 3 ADMINISTRATION		A-6

3.1	The Committee	A-6
3.2	Authority of the Committee	A-6
3.3	Delegation by the Committee	A-6
3.4	Decisions Binding	A-6

SECTION 4 SHARES SUBJECT TO THE PLAN		A-6

4.1	Number of Shares	A-6
4.2	Lapsed Awards	A-7
4.3	Adjustments in Awards and Authorized Shares	A-7

SECTION 5 STOCK OPTIONS		A-7

5.1	Grant of Options	A-7
5.2	Award Agreement	A-7
5.3	Exercise Price	A-7
5.4	Expiration of Options	A-8
5.5	Exercisability of Options	A-8
5.6	Payment	A-8
5.7	Restrictions on Share Transferability	A-9
5.8	Certain Additional Provisions for Incentive Stock Options	A-9
5.9	Grant of Reload Options	A-9
5.10	Exchange for Stock Appreciation Rights	A-9

SECTION 6 RESTRICTED STOCK		A-10

6.1	Grant of Restricted Stock	A-10
6.2	Restricted Stock Agreement	A-10
6.3	Transferability	A-10
6.4	Other Restrictions	A-10
6.5	Removal of Restrictions	A-10
6.6	Voting Rights	A-11
6.7	Dividends and Other Distributions	A-11
6.8	Return of Restricted Stock to Company	A-11

SECTION 7 PERFORMANCE UNITS, PERFORMANCE SHARES AND STOCK UNITS		A-11

7.1	Grant of Performance Units, Performance Shares and Stock Units	A-11
7.2	Initial Value	A-11
7.3	Performance Objectives and Other Terms	A-11
7.4	Earning of Performance Units, Performance Shares and Stock Units	A-12
7.5	Form and Timing of Payment	A-12
7.6	Cancellation	A-12

SECTION 8 NON-EMPLOYEE DIRECTOR AWARDS		A-12

8.1	Grant of Stock Units	A-13
8.2	Terms of Stock Units	A-13
8.3	Dividends and Other Distributions	A-13
8.4	Payment After Vesting	A-13
8.5	Deferral of Proceeds	A-13


		Page
SECTION 9 STOCK APPRECIATION RIGHTS		A-14

9.1	Grant of SARs	A-14
9.2	SAR Agreement	A-14
9.3	Expiration of SARs	A-14
9.4	Exercisability of SARs	A-14
9.5	Payment of SAR Amount	A-14

SECTION 10 MISCELLANEOUS		A-14

10.1	Deferred Unit Compensation Accounts	A-14
10.2	No Effect on Employment or Service	A-15
10.3	Participation	A-15
10.4	Indemnification	A-15
10.5	Successors	A-15
10.6	Beneficiary Designations	A-15
10.7	Limited Transferability of Awards	A-15
10.8	No Rights as Stockholder	A-15
10.9	Withholding Requirements	A-16
10.10	Withholding Arrangements	A-16

SECTION 11 AMENDMENT, TERMINATION AND DURATION		A-16

11.1	Amendment, Suspension or Termination	A-16
11.2	Duration of the Plan	A-16

SECTION 12 LEGAL CONSTRUCTION		A-16

12.1	Gender and Number	A-16
12.2	Severability	A-16
12.3	Requirements of Law	A-16
12.4	Governing Law	A-16
12.5	Captions	A-17


¢		Note: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign. When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership, please sign in partnership name by authorized person.		¢