* Q3 loss/shr from cont ops $1.06 vs est $1.36

* Says working on a plan to recapitalize unit

* Revenue up slightly at $226.9 mln * Total expenses down 16 pct

* Shares rise as much as 10 pct (Adds details, analyst comments, updates share movement)

By Abhinav Sharma and Brenton Cordeiro

BANGALORE, Nov 6 (Reuters) - Mortgage insurer PMI Group Inc (PMI.N: Quote, Profile, Research) posted a narrower-than-expected quarterly loss, helped by its European operations and lower expenses, sending its shares up 10 percent.

The company said it is working on a plan that will enable it to continue writing new mortgage insurance business in certain states, even in the face of regulatory restrictions aimed at containing the amount of risk mortgage insurers can take on.

If PMI can not write new business in those states due to regulatory restrictions, it will do so through an existing unit to be renamed PMI Mortgage Assurance Co (PMAC), it said.

PMI, in an effort to continue to write business in all 50 states, is seeking to reactivate an existing subsidiary … that will enable it to essentially recapitalize the company, analyst Matthew Howlett of Fox Pitt Kelton said.