AR2008 Nxtbook[1]

8/14/2019 AR2008 Nxtbook[1]

1/32

thewarrantygroup.com

Global Headquarters

175 W. Jackson Blvd. Chicago, Illinois 60604

312.356.3000

8/14/2019 AR2008 Nxtbook[1]

2/32

thewarrantygroupannual report 2008

8/14/2019 AR2008 Nxtbook[1]

3/32

8/14/2019 AR2008 Nxtbook[1]

4/32

8/14/2019 AR2008 Nxtbook[1]

5/32

wherever you are

8/14/2019 AR2008 Nxtbook[1]

6/32


8/14/2019 AR2008 Nxtbook[1]

7/32

2008 was a year that tested the fundamentals

of our company. With financial markets in turmoil

and consumer credit constrained, our global

strategy was challenged and we delivered near

record results.

But as it has been since the beginning of our

company in 1964, under circumstances such as

these our 2300 worldwide colleagues not only rise

to the challenge, but leverage it to our advantage.

This is the very essence of The Warranty Group

brand and represents not only what we accomplish

for ourselves, but also for our clients.

For example, with the US auto industry suffering

the combined pain of high gasoline prices, a credit

crunch and a 20% drop in sales, our auto segment

not only maintained the high production levels of

2007, but delivered increased market share as well.

Asian markets delivered a year of solid growth in

all countries. Written revenues increased by more

than 33% across the region, with most countries

demonstrating no less than double-digit growth.

We also saw solid pre-tax net income gains in 2008

versus 2007.

Latin America produced a breakout year of

solid growth in all countries. Written revenues

increased by more than 60% across the region,

with all countries demonstrating double-digit

growth. Pre-tax net income also marked a new

record for the Latin American markets, due to acombination of better underwriting results and

improved investment income.

In our consumer goods segment, despite market

challenges, new clients and the expansion of

existing relationships continue to drive revenue.

New business includes the nations largest

furniture TPA(Third Party Administrator), the

nations largest hearing aid TPA, and the addition

of three new auto TPAs. As important, our pipeline

of new opportunities remains strong.

The European community experienced a market

slowdown midyear which caused serious issues

with a number of our major clients. However, with

a very strong performance from mainland Europe,

gross written premium finished ahead of 2007, and

profitability exceeded plan.

In the year ahead, each of us will be required to

deliver our best to meet the challenges of the world

economy. We will need to place an even greater

focus on anticipating our clients needs and to stay

focused on developing products and programs

that will better serve their customers. We mustidentify every way to make our company more

efficient, while maintaining an even higher level of

performance. As we do this, we will be continuing a

tradition of over four decades a tradition that has

positioned us as the industry leader. Our reputation

as a company that finds opportunity where others

find failure will define us once again.

As Chairman and CEO, I am proud of our 44-year

history, and, especially, of our colleagues. With

their hard work and support, The Warranty Group

will continue its leadership position and make the

most of current opportunities and of those yet

to come.

David L. ColeChairman and CEOThe Warranty Group, Inc.

chairmans letter

4

8/14/2019 AR2008 Nxtbook[1]

8/32

5

8/14/2019 AR2008 Nxtbook[1]

9/32

In our globally competitive industry,

the value we provide our clients is

dependent upon our ability for

perpetual innovation. Its important

that we have the resources to

support the large initiatives our

clients look to us for, but its equally

important that we have a systemic

understanding of our need to be

nimble, efficient and smart. In other

words, our greatest competitive

advantage is the collective talent

of our people, and this past year we

have demonstrated that talent amid

turbulent conditions that required

nothing less. Where others saw

only challenge, our colleagues saw

opportunity and worked from a

confidence in core principles, as well

as an openness to grow and evolve

with the dynamic conditions that

lay ahead.

This past year marked our second

as a standalone company. Around

the globe, we continued to align

our offices to create more efficient

models for our clients, and managed

to avoid the growing pains that

usually accompany an endeavor

of this scope. The ability of our

colleagues to remain focused on

anticipating our clients needs has

been unwavering. As we continue

to grow organically, we continue to

think and act locally with the added

ability to leverage global resources

and expertise for our growing roster

of clients. The Warranty Groups

greatest asset is its people; another

year has demonstrated this, and this

is the foundation from which we look

ahead with confidence.

people

6

8/14/2019 AR2008 Nxtbook[1]

10/32

7

8/14/2019 AR2008 Nxtbook[1]

11/32

8

8/14/2019 AR2008 Nxtbook[1]

12/32

8/14/2019 AR2008 Nxtbook[1]

13/32

10

8/14/2019 AR2008 Nxtbook[1]

14/32

europe

In Europe, our newly aligned

operational Centers of Excellence

provided a more focused position from

which we could extend our offerings

and leverage our reputation for prudent

underwriting, incisive marketing and

flawless administration. This improved

focus and communication has further

strengthened our unique Pan-European

capabilities, which, in 2008, led to some

very high profile opportunities in the UK

and throughout continental Europe.

Against an increasingly challenging

marketplace, we maintained our pre-

eminent position in the Dutch creditor

market, and our presence in the

Eastern European arena continues

to be consolidated with steady growth.

Our reputation for market-leading

client service was further recognized

in 2008 when the administration

and insurance business of the UKs

leading retailer, renowned for quality

and service, was secured.

The contraction of the global credit

markets proved challenging across all

of Europe, but we have continued to

adapt and develop alternative product

structures and distribution channels

that will pay dividends in 2009.

The timing for our investments in

infrastructure over the last two years

has given us an advantage in a market

where other players are facing deeper

challenges. Along with our strong

balance sheet and minimal exposure to

catastrophic risk, our powerful database

has grown, allowing us to demonstrate

with hard numbers how our programs

will deliver. Beyond generating new

revenue streams, we are able to offer

our clients one of the most valuable

assets of all: stability. In the coming yearthere will be many challenges in

Europes embattled markets, but there

will also be opportunity for strong

companies that can adapt. Companies

like The Warranty Group.

11

8/14/2019 AR2008 Nxtbook[1]

15/32

The narrative for our emerging markets in 2008 has

two parts one before the tightening of the global

credit market and one after. The first two quarters

showed breakout growth throughout Latin America

and Asia. Numbers for the second half reflect thetightening and following deterioration of consumer

confidence. Despite these conditions, we ended the

year with double-digit growth in all regions.

Our infrastructure investment in Brazil paid early

dividends with a more efficient and more focused

center of operations. The Latin markets continue to

be subject to heavy federal regulation, which has kept

much of the competition away and positioned us as

the company to partner with for smart, compliant

business models that deliver on every transaction.

A large luxury automobile manufacturer reaped large

returns from our expertise in Latin America. When theyasked for help gaining traction in an untapped market,

we created a new program that led to the sale of 4,000

luxury vehicles, exceeding their revenue targets and

generating excitement for their brand.

In Asia and Australia written revenue increased over

33% while maintaining overall pre-tax profit margins

and increasing overall profits. Australia, Malaysia and

China

each showed exceptional growth. We partnered

with the largest reseller of computers and related

products in China to establish a web-based customer

registration system that has streamlined processes,established a powerful database and greatly improved

customer service.

While we expect the economic slowdown to continue

next year in the emerging markets, our hard work

this past year puts us in good position to meet the

challenges. Through the leaner times, our strong

balance sheet, lack of exposure to complex risk and

ability to think and act locally with the leverage of a

global business will allow us to capture more market

share and plant seeds for long-term growth.

international

12

8/14/2019 AR2008 Nxtbook[1]

16/32

13

8/14/2019 AR2008 Nxtbook[1]

17/32

14

8/14/2019 AR2008 Nxtbook[1]

18/32

CSR is fundamental to our culture and core values.

We care about the communities in which we live

and work, and actively support endeavors that

sustain and enhance the quality of life of our

employees, customers and the community at large.

Our CSR initiatives also reflect our commitment toensuring sound corporate governance, transparency

and compliance.

This past year we have broadened our commitment

to cultural institutions in Chicago and have further

driven corporate philanthropy across the over 30

countries we serve with the launch of our Global

Goodwill Ambassador Program. Through volunteerism,

charity drives and wellness initiatives, we are able to

attract and retain talent by offering opportunity and

incentive for employees to take an active stake in the

betterment of themselves and their communities.

And our commitment to the communities we serve

goes beyond simply giving money: we want to be

engaged. In 2008, we stepped up our efforts by

partnering with a leading social service agency to

provide ongoing support to their organization through

board appointments, donations and monthly drives

for school supplies, toys and food.

By implementing and expanding environmentally

sustainable practices and offering environmental and

social options for our products, we not only do our part

as good corporate citizens, we also rise to the growing

demands of our clients and business partners.

corporate social responsibility

15

8/14/2019 AR2008 Nxtbook[1]

19/32

16

8/14/2019 AR2008 Nxtbook[1]

20/32

The economic freefall of the latter half of 2008 will not quickly abate, and

full recovery will likely not occur without unprecedented public and private

investment. What everyone seems to agree on is that stabilization will pave

the way for a vigorous turnaround.

As we enter into our third year as a standalone company, we see a lot of

opportunity in the broad and sweeping changes that directly affect our

industry and the industries we support. Our ability to unlock the profit

potential for our clients products on a global stage provides a strong

competitive advantage. But more than structure and position, our reputation

for quality, transparency and compliance, which are really just big words for

Taking the time to do things the right way, continues to guide us and

separate us from the competition.

We hear it everywhere: Never squander the opportunities a crisis presents.

Our strong balance sheet, prudent underwriting and commitment to quality

provide a resilient base from which we can confidently seek out the different

opportunities the shifting markets provide. While economic conditions

remain unclear for 2009, our core values and commitment to quality will

not waver. In this spirit, we look forward to what the new year brings.

looking ahead

17

8/14/2019 AR2008 Nxtbook[1]

21/32

18

8/14/2019 AR2008 Nxtbook[1]

22/32

The Warranty Group, Inc.

Years Ended December 31, 2008 and 2007

19

8/14/2019 AR2008 Nxtbook[1]

23/32

Assets

Invested assets:

Fixed-maturity securities, at fair value (amortized

cost, 2008 $1,571,922; 2007 $1,542,643)

Short-term investments

Dealer loans (net of allowance,

2008 $2,672; 2007 $0)

Equity securities, at fair value (cost,

2008 $27,225; 2007 $29,762)

Other investments

Total invested assets

Cash and cash equivalents

Receivables:

Reinsurance balances recoverable (net of allowance,

2008 $0; 2007 $807)

Ceded claims recoverablePremiums and contract fees receivable (net of allowance,

2008 $3,782; 2007 $857)

Total receivables

Accrued investment income

Current income taxes receivable

Deferred income taxes

Deferred acquisition costs

Prepaid reinsurance premiums

Property and equipment, net

Goodwill

Value of business acquiredOther intangible assets

Other assets

Total assets

1,515,443 $

474,357

26,173

17,653

2,818

2,036,444

46,762

34,804

928,773

118,485

1,082,062

21,373

2,626

36,358

430,804

560,541

41,130

343,659

124,025

99,929

69,596

4,895,309 $

1,574,240$

588,174

30,055

28,990

2,553

2,224,012

51,443

60,852

1,096,183

116,465

1,273,500

21,925

19,550

38,098

267,691

624,058

40,487

343,659

276,373

118,044

102,491

5,401,331$

December 31

2008 2007

20

8/14/2019 AR2008 Nxtbook[1]

24/32

Liabilities and stockholders equity

Reserves:

Unearned premiums

Unearned contract fees

Claims and benefits payable

Total reserves

Deferred income taxes

Ceded reinsurance premiums payable

Notes payable

Other liabilities

Total liabilities

Stockholders equity:

Preferred stock, par value $0.001 per share, 100,000

shares authorized, 51,132 shares issued and

outstanding at December 31, 2008 and 2007

Common stock, par value $0.001 per share, 100,000

shares authorized, 55,824 and 54,231 shares issued and

outstanding at December 31, 2008 and 2007, respectively

Additional paid-in capital

Retained earnings

Accumulated other comprehensive loss, net of taxes

Total stockholders equity

Total liabilities and stockholders equity

For a copy of our 2008 Ernst & Young audited financial statements, please call312.356.2320.

2,401,040 $

175,915

1,095,519

3,672,474

15,277

122,282

196,000

256,209

4,262,242

506,207

9,437

168,520

(51,097)

633,067

4,895,309 $

2,629,228$

170,581

1,264,664

4,064,473

25,727

193,093

198,000

329,807

4,811 ,100

506,207

8,271

88,254

(12,501)

590,231

5,401,331$

December 31

2008 2007

21

8/14/2019 AR2008 Nxtbook[1]

25/32

22

8/14/2019 AR2008 Nxtbook[1]

26/32

Revenue

Premium earned

Contract fees and other income

Net investment income

Net realized losses

Total revenue

Expenses

Benefits to policyholders

Amortization of deferred acquisition costs

Amortization of intangible assets

Profit commissions

Interest crediting

Interest expense

Other operating expenses

Total expenses

Income before income taxesIncome tax expense

Net income

1,027,766 $

183,931

101,641

(14,357)

1,298,981

581,296

43,011

170,463

42,469

11,049

8,660

259,188

1, 116,136

182,845 60,423

122,422 $

1,028,561$

179,769

109,832

(2,332)

1,315,830

569,369

49,160

174,880

54,352

19,678

12,687

256,179

1,136,305

179,52562,315

117,210$

For a copy of our 2008 Ernst & Young audited financial statements, please call312.356.2320.

Year ended December 31

2008 2007

consolidated statements of income(in thousands)

23

8/14/2019 AR2008 Nxtbook[1]

27/32

David L. ColeChairman and Chief Executive OfficerThe Warranty Group, Inc.

John D. CurtisAttorneyFormer Partner, Baker & McKenzie

Former President and Chief Executive OfficerFirst Extended, Inc.

Peter C. GodsoeFormer Chairman and CEOThe Bank of Nova Scotia

Elizabeth HarringtonCEOHarrington Global

John M. KellyFormer Chief Executive Officer

Man Investments Inc.North American Operations

Bobby Le BlancManaging DirectorOnex Corporation

Harvey H. MedvinFormer Executive Vice Presidentand Chief Financial OfficerAon Corporation(Retired)

Mark H. MishlerPresident and Chief Operating OfficerThe Warranty Group, Inc.

Thomas C. RameyChairman and PresidentLiberty International

24

8/14/2019 AR2008 Nxtbook[1]

28/32

David L. ColeChairman and Chief Executive OfficerThe Warranty Group, Inc.

Mark H. MishlerPresident and Chief Operating OfficerThe Warranty Group, Inc.

James L. DonaldsonExecutive Vice PresidentLatin American Markets

John E. EnglandExecutive Vice PresidentResource Automotive Solutions

Michael F. FroschPresident and Chief Operating OfficerNorth America Consumer Products

Barbara J. GoffSenior Vice PresidentGlobal Human Resources

Anthony M. JackovichSenior Vice PresidentChief Information Officer

Sophocles L. KarapasExecutive Vice PresidentNorth American Administrative Operations

Robert P. MancusoSenior Vice PresidentCorporate CommunicationsInvestor Relations Officer

Ronald D. MarkovitsSenior Vice PresidentGeneral Counsel

Thomas P. MurrayPresident and Chief Operating OfficerResource Automotive

Brian K. OllechSenior Vice PresidentGlobal Controller

Roger C.J. PowellManaging Director and Chief Executive OfficerEurope

David R. ScottExecutive Vice PresidentAsian Markets

John H. SerafinExecutive Vice PresidentChief Risk Officer

David I. VickersExecutive Vice PresidentChief Financial Officer

Independent Auditor

Ernst & Young LLP

25

8/14/2019 AR2008 Nxtbook[1]

29/32

wherever you go

8/14/2019 AR2008 Nxtbook[1]

30/32


8/14/2019 AR2008 Nxtbook[1]

31/32

8/14/2019 AR2008 Nxtbook[1]

32/32

Documents

AR2008 Nxtbook[1]