thewarrantygroup.

com

Global Headquarters
175 W. Jackson Blvd. Chicago, Illinois 60604
312.356.3000
thewarrantygroup annual report 2008
thewarrantygroup annual report 2008
wherever you are
thewarrantygroup.com

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 a
combination 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.
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chairman’s letter
New business includes the nation’s largest
furniture TPA(Third Party Administrator), the
nation’s largest hearing aid TPA, and the addition
of three new auto TPA’s. 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 must
identify 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. Cole
Chairman and CEO
The Warranty Group, Inc.
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 people

In our globally competitive industry,

the value we provide our clients is
dependent upon our ability for
perpetual innovation. It’s important
that we have the resources to
support the large initiatives our
clients look to us for, but it’s 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 Group’s
greatest asset is its people; another
year has demonstrated this, and this
is the foundation from which we look
ahead with confidence.

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 north america
The broad story of what became a financially
memorable year was the recession and the
imperiling effects of complicated financial
instruments. As underwriters, we have a close
understanding of how debilitating undefined or
incorrectly defined risk can be, and that’s why
our approach has always been conservative. This
approach has kept our balance sheet strong and
may, in part, explain why we haven’t felt the
effects of the recession as acutely as many of
our competitors. Rather than focus on short-term
profit, we provide sustainable returns and refined
data for our clients, which in turn leads to
profitability and growth. Our numbers show
that we were not immune to the economic
slowdown of 2008, but they also reflect the
positive outcome of our approach.
Our consumer goods unit continued to drive
revenue through a combination of organic growth
and portfolio expansion with the acquisition
of new business in the medical, appliance and
furniture segments. Additionally, we partnered
with several TPA’s and a new Web-based
warranty channel.
Throughout the year we innovated not only
with new programs, such as travel assistance,
but also with the way warranties can be bundled
and purchased by the end user. While challenges
remain with the plunge in consumer confidence,
the reputation for quality our consumer goods
division has built enables us to aggressively
capture market share and position ourselves
forwardly for when economic conditions improve.
In 2008, the embattled US auto industry faced
climbing gas prices, a credit crisis and the
lowest sales numbers recorded in half a century.
These conditions famously threatened not just
their bottom lines, but their existence. In this
challenging environment we were able to
maintain our production levels of 2007 and
achieve an increase in market share.
Our DriverPlus™ program launched successfully
and continues to add value for our clients with
new revenue opportunities critically needed in
this challenging market. Our highly-respected
industry insight and resources led us to help
with the successful national marketing campaign
and launch of an exciting new energy-efficient
automobile, which we expect will lead to more
opportunity. And our Operational Excellence
program continues to drive efficiencies for
dealerships and manufacturers across the nation.
Being the only provider that’s able to propel
every automotive profit center to greater
efficiency continues to provide us an unparalleled
competitive advantage. As manufacturers rein
in operations and focus on their core strengths,
we are positioned to enable them to do what
they do best.
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 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.
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 UK’s
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 year
there will be many challenges in
Europe’s embattled markets, but there
will also be opportunity for strong
companies that can adapt. Companies
like The Warranty Group.

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 international

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 the
tightening 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 they
asked 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
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share and plant seeds for long-term growth.
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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 to
ensuring 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

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looking ahead

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.

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The Warranty Group, Inc.
Years Ended December 31, 2008 and 2007

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 December 31
2008 2007

Assets
Invested assets:
Fixed-maturity securities, at fair value (amortized
cost, 2008 – $1,571,922; 2007 – $1,542,643) $ 1,515,443 $ 1,574,240
Short-term investments 474,357 588, 174
Dealer loans (net of allowance,
2008 – $2,672; 2007 – $0) 26,173 30,055
Equity securities, at fair value (cost,
2008 – $27,225; 2007 – $29,762) 17,653 28,990
Other investments 2,818 2,553
Total invested assets 2,036,444 2,224,012

Cash and cash equivalents 46,762 51,443

Receivables:
Reinsurance balances recoverable (net of allowance,
2008 – $0; 2007 – $807) 34,804 60,852
Ceded claims recoverable 928,773 1,096,183
Premiums and contract fees receivable (net of allowance,
2008 – $3,782; 2007 – $857) 118,485 116,465
Total receivables 1,082,062 1,273,500

Accrued investment income 21,373 21,925

Current income taxes receivable 2,626 19,550
Deferred income taxes 36,358 38,098
Deferred acquisition costs 430,804 267,691
Prepaid reinsurance premiums 560,541 624,058
Property and equipment, net 41,130 40,487
Goodwill 343,659 343,659
Value of business acquired 124,025 276,373
Other intangible assets 99,929 118,044
Other assets 69,596 102,491
Total assets $ 4,895,309 $ 5,401,331

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 December 31
2008 2007

Liabilities and stockholders’ equity

Reserves:
Unearned premiums $ 2,401,040 $ 2,629,228
Unearned contract fees 175,91 5 170,581
Claims and benefits payable 1,095,519 1,264,664
Total reserves 3,672,474 4,064,473

Deferred income taxes 15,277 25,727

Ceded reinsurance premiums payable 122,282 193,093
Notes payable 196,000 198,000
Other liabilities 256,209 329,807
Total liabilities 4,262,242 4,811 ,100

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 506,207 506,207
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 9,437 8,271
Retained earnings 168,520 88,254
Accumulated other comprehensive loss, net of taxes (51,097) (12,501)
Total stockholders’ equity 633,067 590,231

Total liabilities and stockholders’ equity $ 4,895,309 $ 5,401,331

For a copy of our 2008 Ernst & Young audited financial statements, please call 312.356.2320.

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consolidated statements of income
(in thousands)

Year ended December 31

2008 2007

Revenue
Premium earned $ 1,027,766 $ 1,028,561
Contract fees and other income 183,931 179,769
Net investment income 101,641 109,832
Net realized losses (14,357) (2,332)
Total revenue 1,298,981 1, 315,830

Expenses
Benefits to policyholders 581,296 569,369
Amortization of deferred acquisition costs 43,011 49,160
Amortization of intangible assets 170,463 174,880
Profit commissions 42,469 54,352
Interest crediting 11,049 19,678
Interest expense 8,660 12,687
Other operating expenses 259,188 256,179
Total expenses 1, 116,136 1,136,305
Income before income taxes 182,845 179,525
Income tax expense 60,423 62,315
Net income $ 122,422 $ 117,210

For a copy of our 2008 Ernst & Young audited financial statements, please call 312.356.2320.

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 David L. Cole
Chairman and Chief Executive Officer
The Warranty Group, Inc.

John D. Curtis
Attorney
Former Partner, Baker & McKenzie
Former President and Chief Executive Officer
First Extended, Inc.

Peter C. Godsoe
Former Chairman and CEO
The Bank of Nova Scotia

Elizabeth Harrington
CEO
Harrington Global

John M. Kelly
Former Chief Executive Officer
Man Investments Inc.
North American Operations

Bobby Le Blanc
Managing Director
Onex Corporation

Harvey H. Medvin
Former Executive Vice President
and Chief Financial Officer
Aon Corporation
(Retired)

Mark H. Mishler
President and Chief Operating Officer
The Warranty Group, Inc.

Thomas C. Ramey
Chairman and President
Liberty International

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David L. Cole Ronald D. Markovits
Chairman and Chief Executive Officer Senior Vice President
The Warranty Group, Inc. General Counsel

Mark H. Mishler Thomas P. Murray

President and Chief Operating Officer President and Chief Operating Officer
The Warranty Group, Inc. Resource Automotive

James L. Donaldson Brian K. Ollech

Executive Vice President Senior Vice President
Latin American Markets Global Controller

John E. England Roger C.J. Powell

Executive Vice President Managing Director and Chief Executive Officer
Resource Automotive Solutions Europe

Michael F. Frosch David R. Scott

President and Chief Operating Officer Executive Vice President
North America Consumer Products Asian Markets

Barbara J. Goff John H. Serafin

Senior Vice President Executive Vice President
Global Human Resources Chief Risk Officer

Anthony M. Jackovich David I. Vickers

Senior Vice President Executive Vice President
Chief Information Officer Chief Financial Officer

Sophocles L. Karapas
Executive Vice President
North American Administrative Operations Independent Auditor
Ernst & Young LLP
Robert P. Mancuso
Senior Vice President
Corporate Communications
Investor Relations Officer

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