annual report 2007

For business. For consumers. For the world.

adding value
to every transaction

For over 40 years, our warranty and product enhancement solutions have
driven revenue and customer retention for our business partners worldwide.
thewarrantygroup.com
annual report 2007
chairman’s letter
Our team is our most valuable asset.
2007 marked the first anniversary of
The Warranty Group as a stand-alone
company. Much more than that, however,
was the manner in which we reached this
exciting milestone.
No small feat was the seamless and successful
manner in which we transitioned away from
a parent company of over 40 years to become
independent. Other organizations might lose
focus when facing these challenges, but not
The Warranty Group. In fact, throughout the
organization, we leveraged the opportunity to
look at how we might become more efficient
and deliver even more value to our clients.
It was truly a win/win effort for our colleagues
and our customers.
Our new brand gained traction globally,
providing us an entrée into new markets.
We established our first Board of Directors
and created our first annual report. Over
600 employees relocated to our new global
headquarters in the financial district of
downtown Chicago, and we replaced critical,
previously-shared services including tax,
treasury, investments, internal audit, human
resources, legal, corporate planning and others.
Throughout, the passion that is unique to
our company meant that we maintained a
focus on the fundamentals and delivered record
results, ending the year with $5 billion in assets,
and $2 billion of gross written premium, fees
and investment income. This marks another
milepost in our journey.
In addition, we gained ground in all segments,
including North America, Europe and Other
International, which includes Asia and Latin
America. The unique ability of our company to
respond to market demands around the world
positioned us perfectly, and it will continue to
do so in the future.
As we look to 2008, we see a global economy
that is again providing new opportunities to
deploy our unique human and capital resources
and capture new markets with our innovative
approaches and benchmark support.
It has never been more clear that our most
valuable asset is our global team of colleagues.
Every hour of every day, an employee of
The Warranty Group is responding to a
client somewhere in the world, bringing the
expertise of a long-time industry leader and
the energy and attitude of a newly independent
organization to every touchpoint. Without these
resources, no one can do what we do.
We are the one, the only, the original.
We are The Warranty Group.
David L. Cole
Chairman and CEO
5
 True to the culture that is The Warranty Group,
our first year as a stand-alone company proved
more fruitful than challenging, resulting in
record revenues and assets.

As expected, our global footprint, innovative

products and customer-focus provided the
engine for continued growth in all segments.

North America delivered exceptional results,

with increases across all units including
automotive, consumer goods, and product
enhancements. With increased scrutiny given
to financial strength, The Warranty Group
benefited from our vast database of product
and program experience, intelligent underwriting
and strong balance sheet. A flight to quality
appears to be the emergent trend, and we and
our client partners are clearly benefactors.

European operations developed record

revenues through thoughtful acquisition
and cross-selling, with a significant increase
in auto warranty. In addition, all mainland
European offices were relocated, with a new
hub in Amsterdam.

2007
International operations, including Asia and
Latin America, reflected the dynamic mix of
opportunity and challenge that characterize
growth and emerging markets. Latin America
reached record revenues through robust
growth in Argentina, Brazil and Columbia,
with Mexico showing measurable progress.
In Asia, new clients in China along with
expanded initiatives with partners in Japan,
Korea, Malaysia, Australia and New Zealand
position us for accelerated revenue growth
in 2008 and beyond.

2007 was a successful year by any standard,

but as year one of our new company, it
represents an even grander achievement.
A tradition of success has begun.

Year one: a success by any standard.

7
people
The essence of The Warranty Group’s value
proposition resides in our global team of
colleagues. More than simple support, our
worldwide family has shown enormous
talent and enterprise in understanding
our clients’ needs and delivering value.

Our global diversity is important, but

ultimately it’s about local delivery. Each
market is different and our success has
come from the dedicated group of
individuals at The Warranty Group who
are creating solutions that work at a local
level. We think and act as a local company
that happens to be American-owned—not
an American company that happens to
do business locally.

The energy and creativity unleashed this year

have resulted in benchmark production and
performance. Our initiatives to reward and
promote exceptional achievement continue
to form the foundation for future growth.

In all the markets we serve, a commitment

to the basic principles of good corporate
governance, transparency and fairness is
shared. This informs our practices worldwide,
and, beyond being a source of pride and the
right thing to do, it has built trust in our brand
and positive and enduring relations with our
clients and the communities we serve.

The essence of value.

9
 It was another year of growth for our
domestic markets, with the launch of
several innovative products and a return
of many clients to the brand they can trust.
This presented a unique opportunity for us.
The simple reason is quality. While we’re
not able to create any new math for our
clients, we can deliver a full spectrum of
dependable services that are customized to
meet their specific needs. Our single-source
solution and over four decades of experience
made things simple for our clients, allowing
them to focus on what they do best.
The roots of The Warranty Group are in
the development of finance and insurance
solutions for the North American automotive
market. Building upon this heritage in 2007,
our automotive division continued to grow
its relationships with manufacturers and
dealerships, unlocking their profit potentials
and increasing their customer loyalty and
retention rates.
The ongoing trend of consolidation continued
in 2007, and while manufacturers enjoy the
efficiencies this model creates, it also demands
more vigilance in maintaining employee
engagement, focus and compliance.
10
Bigger doesn’t have to mean more bureaucratic.
Our consulting and training services ensure
this. And we’ve engineered our programs to
last, with modifications necessary to maintain
compliance with current regulation.
In 2007, we helped our clients realize
their strategies—whether it was customer
retention, acquisition, revenue generation or
a combination, we delivered. Our innovative
travel and identity-theft products and credit
card enhancements demonstrated our
ability to think beyond the numbers to what
people truly value. While technology pushes
consumer electronics into obsolescence
with astonishing speed, it’s not always the
product that people really value. It’s what
the product holds—for instance, the data
contained in a laptop or a cellphone. We
understand and develop products that
protect the things our clients really value.
Our unique alignment of underwriting,
administration and marketingallows us
to think differently from other providers.
This special alignment made 2007 a
standout year for the domestic markets
at The Warranty Group.
north america
Adding value to the customer experience.
 Our European markets started the year with
the formidable task of relocating operations
in the Netherlands, Germany, Italy, Belgium
and Ireland. As testament to the talented
and resilient team of professionals in our
European markets, we did not lose focus.
We met this challenge and ended the year
posting larger revenues throughout all
operations with significant growth in assets.
We also expanded our centers of excellence
to the Nordic regions with the opening of
our office in Malmö, Sweden.

We made it a priority to expand distribution

channels, and were able to do so by forging
many new relationships made available as
a result of our new, independent and more
agile configuration. We continue to expand
by equipping local expertise with global
network resources.

Whether our clients wanted to implement the

most tax-efficient business model, navigate
the diverse legal and regulatory environments
or launch a targeted marketing campaign, we
delivered results. In 2007, we leveraged our
reputation and new alignment to create many
cross-selling opportunities. We were the single
source for many of our clients, allowing them

european markets
to manage only one relationship, so they could
focus on their core business. We ended 2007
retaining an A- (excellent) A.M. Best rating,
and in an even better position to deliver even
more opportunity to our partners in 2008
and beyond.

12
Delivering opportunity.
 international

The Warranty Group is the largest

independent provider of service plans
in the world. In many countries, we are the
only provider across all consumer product
lines. And while our broad global reach is a
key competitive strength, our ability to think
locally has sustained our efforts. In emerging
markets, our comprehensive range of warranty
solutions continues to unlock the potential of
our clients’ products, and offers opportunities
on the world stage.

In our Latin markets, 2007 saw growth in

revenue and infrastructure enhancements,
with the implementation of our new
operating system and relocation to a more
fully integrated headquarters in Brazil.

We’ve enjoyed first-in-market advantages

for over a decade, and have only begun to
glimpse the fruit of our labors in developing
compliant business models that create
greater profit potential for our clients. In our
Latin markets, we see the imminent rise of
the global middle class and of monetary
policies that empower entrepreneurial drive
able to forge key partnerships with the two
and innovation. We see vast opportunity for
leading consumer electronic retailers in China.
growth in 2008 and beyond.
We were also able to capture more market
share with the leading automotive group in
In our Asian markets, we were able to
South Korea. And, in Australia, we partnered
capitalize on the continuing trend of
with a major finance company that provides
consolidation in the automotive and
extended warranties, credit insurance and GAP
consumer electronics industries. While
products to their automotive-dealer clients.
our focus is on organic growth, we were

14
The ability to think and act locally.
 looking to 2008 At The Warranty Group, we understand
the importance of sound financials and
diversification. That’s part of our nature as
the world’s leading provider of service plans.
As the uncertain market conditions persist
in 2008, our legacy of value creation and
creativity look to be attractive commodities.

Over the last twenty years we have made it

a priority to expand geographically. We’ve
developed more distribution channels
domestically as well as abroad, and we’ve
honed our customer-focus so that we can
better tailor our products to the demands
of our clients. These strategies provide
stability through difficult market conditions.
The strength of our balance sheet and
our wide range of products will shepherd
us through whatever market conditions
lie ahead.

With new Nordic operations in Sweden, a new

South American headquarters in Brazil, new
partnerships in China and Australia, among
others, it’s an exciting time for The Warranty
Group. Our second year as a stand-alone
company looks to be a dynamic one. We
will continue to provide consumers with
confidence and peace of mind, and producers
with enhanced customer loyalties and new
revenue streams.

At The Warranty Group, we look beyond

the numbers to what people truly value,
and that has been the key to our innovative
approach and will be the key to our success
in 2008 and beyond.

16
Diversity of products and geography.
FINANCIAL SUMMARY

The Warranty Group, Inc.

Year Ended December 31, 2007, and One-Month
Period Ended December 31, 2006

21
 The Warranty Group, Inc.

Consolidated Balance Sheets

(In Thousands, Except Share Data)

December 31
2007 2006
(Restated)
Assets
Cash and cash equivalents $ 51,443 $ 89,044
Invested assets:
Fixed-maturity securities, at fair value (amortized
cost, 2007 – $1,542,643; 2006 – $1,263,459) 1,574,240 1,257,500
Short-term investments 588,174 708,030
Dealer loans (net of allowance for credit losses,
2007 – $2,191; 2006 – $0) 30,055 30,411
Equity securities, at fair value (amortized cost,
2007 – $29,762; 2006 – $0) 28,990 –
Other investments 2,553 3,841
Total cash and invested assets 2,275,455 2,088,826

Receivables:
Reinsurance balances recoverable (net of allowance
for doubtful accounts, 2007 – $1,664; 2006 – $2,649) 75,741 20,777
Ceded claims recoverable 1,081,992 1,280,981
Premiums and contract fees receivable 104,109 103,072
Total receivables 1,261,842 1,404,830

Accrued investment income 21,925 16,561

Current income taxes receivable 19,550 –
Deferred income taxes 38,098 83,490
Deferred acquisition costs 293,420 43,451
Prepaid reinsurance premiums 646,629 820,663
Property and equipment, net 40,487 23,578
Goodwill 343,659 383,072
Value of business acquired 276,373 383,848
Other intangible assets 118,044 131,950
Other assets 100,470 104,177
Total assets $ 5,435,952 $ 5,484,446

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 December 31
2007 2006
(Restated)

Liabilities and stockholders’ equity

Reserves:
Unearned premiums $ 2,677,528 $ 2,775,388
Unearned contract fees 170,581 163,389
Claims and benefits payable 1,264,664 1,441,861
Total reserves 4,112,773 4,380,638

Current income taxes payable - 2,066

Deferred income taxes 25,727 25,816
Ceded reinsurance premiums payable 194,648 128,078
Notes payable 195,997 197,590
Other liabilities 316,576 230,650
Total liabilities 4,845,721 4,964,838

Stockholders’ equity:
Preferred stock, par value $.001 per share, 100,000
shares authorized, 51,132 and 51,100 shares issued and
outstanding at December 31, 2007 and 2006, respectively 506,207 505,890
Common stock, par value $.001 per share, 100,000
shares authorized, 54,231 and 51,100 shares issued and
outstanding at December 31, 2007 and 2006, respectively - -
Additional paid-in capital 8,271 5,110
Retained earnings 88,254 16,570
Accumulated other comprehensive loss, net of taxes (12,501) (7,962)
Total stockholders’ equity 590,231 519,608

Total liabilities and stockholders’ equity $ 5,435,952 $ 5,484,446

For a copy of our 2007 Ernst & Young audited financial statements, please call 312.356.2320.

23
 The Warranty Group, Inc.

Consolidated Statements of Income

(In Thousands)

Year Ended One-Month

December 31 Period Ended
2007 December 31 2006

Revenue
Premium earned $ 1,028,561 $ 82,891
Contract fees and other income 179,769 18,211
Net investment income 109,832 8,437
Net realized losses (2,332) (616)
Total revenue 1,315,830 108,923

Expenses
Benefits to policyholders 569,369 42,548
Amortization of deferred acquisition costs 49,160 1,560
Amortization of intangible assets 174,880 13,402
Profit commissions 58,345 5,942
Other operating expenses 271,864 19,207
Interest expense 12,687 1,203
Total expenses 1,136,305 83,862
Income before income taxes 179,525 25,061
Income tax expense 62,315 8,491
Net income $ 117,210 $ 16,570

For a copy of our 2007 Ernst & Young audited financial statements, please call 312.356.2320.

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Beyond the numbers to what people truly value.
 David L. Cole
board of directors
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

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.

26
corporate officers and management

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

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

Patrick K. Donahue Robert P. Mancuso

President Senior Vice President
Resource Dealer Group Corporate Communications
General Agents Investor Relations Officer

James L. Donaldson Ronald D. Markovits

Executive Vice President Senior Vice President and General Counsel
Latin American Markets
Roger C.J. Powell
John E. England Chairman and Chief Executive Officer
President Europe
Resource Automotive Solutions
David R. Scott
Michael F. Frosch Executive Vice President
President and COO Asian Markets
TWG Innovative Solutions
TWG Home Warranty John H. Serafin
North American Consumer Products Senior Vice President
Chief Risk Officer
Barbara J. Goff
Senior Vice President Lester T. Shapiro
Global Human Resources Senior Vice President
Worldwide Performance Improvement
C. Steve Hayes
Senior Vice President David I. Vickers
Chief Underwriting Officer Executive Vice President
Chief Financial Officer
Anthony M. Jackovich
Senior Vice President
Chief Information Officer

Independ Registered Public Accounting Firm

Ernst & Young, LLP

27
175 west jackson boulevard
chicago, illinois 60604
312.356.3000

thewarrantygroup.com