You are on page 1of 16

secure

diversified

2009

thewarrantygroupannual report

global

innovative

175 West Jackson Boulevard Chicago, Illinois 60604

thewarrantygroup.com

At The Warranty Group, we illuminate the opportunities your products hold. Whether you want to attract new clients, generate revenue, or increase customer loyalty,our programs create opportunity with every transaction. With presence in 36 countries, we are the worlds largest provider of service contracts. We achieved this through our unique integration of marketing, underwriting, and administration that empowers us to design programs that better connect your product to your customer. We elevate the everyday because we understand the more your products can do for your customer, the more they can do for you.

CHAIRMANS LETTER
2009 was a year of continued challenges. With pressure on employment and credit, consumer spending remained weak and saving and debt reduction took precedence. Many highly regarded companies in our industry found themselves exposed in high risk positions and subsequently had their ratings downgraded. Our philosophy of conservative and disciplined operations, strong balance sheet and diversity of product, geography and people kept The Warranty Group resilient in these headwinds yielding a near record performance. Our success served to further position us as the industry leader, attracting both new clients and desirable intellectual capital. 2009 Financial Performance While not every segment achieved their 2009 objectives, on aggregate, our global results reflect a successful execution of the strategy that has driven our success for 45 years implementing innovative solutions that create revenue for our partners and instill loyalty in their customers. Net revenue for the year were $1.37B compared to $1.3B in 2008. Operating earnings were $123M compared to $122M in 2008. The contraction of the economies of the US, UK and mainland Europe resulted in fewer goods sold, but the consumer desire to protect purchases enhanced attachment rates, as reduced average selling prices allowed for similarly reduced costs for service plans. Fewer auto sales in North America meant fewer opportunities to append our products, but retailers and manufacturers alike engaged our competencies to create new customer benefits and mine revenues throughout their operations, including a payment protection program for one of the worlds largest car makers. Focus on Efficiency Utilizing an employee-driven cost-cutting initiative and diligent management oversight, operating expenses were reduced by over $3 million from 2008, without systemic reduction in head count. Throughout the organization, we had to do more than just work harder; we also had to work smarter. We significantly reduced our global travel expense through the use of videoconferencing and saved over $500,000 by moving to Voice over Internet Protocol (VoIP) for US telephony. The consistency and resilience of our earnings is indicated in our 2009 results. Our nearly 2000 global associates met the challenge of doing more with less and ignoring the noise in the markets, while focusing on each client and every transaction.

Looking Ahead Its impossible to forecast the economic environment that lies ahead with any certainty, but there is no doubt that The Warranty Group enters 2010 stronger, leaner and with the momentum of consistent revenue and earnings that provide a competitive advantage regardless of market conditions. We have benefited from a diligent focus on value creation for our customers and our stakeholders, and 2010 will further validate this commitment.

PEOPLE
2009 defined The Warranty Group family as the foundation of our industry leadership and our continued market domination.

There are many paths to success. Within an organization, a superior process may provide the differentiator that attracts new business and retains relationships. In some cases, opportunity presents itself through changing market conditions or unforeseen events, and leadership comes from being at the right place at the right time. In others, a breakthrough technology lends premier status, and leadership is achieved.

north america

The challenges of 2008 continued into 2009 throughout the automotive segment. With credit tightening and rising unemployment, discretionary spending remained restrained, reducing the opportunities for service plan and related benefit attachment. Against these challenges, we were able to increase market share with product penetrations that outperformed the market. Even more impressive, we did this without significant account loss despite the historic downturn in retail outlets. New programs specifically tailored to accommodate the current needs of the retail dealer spurred organic growth. Programs designed to provide timely cash flow as well as competitive price points quickly gained traction in the US. To best advantage the marketplace, a senior position was created to direct a team focused solely on acquisition and directed at organizations capable of implementing process-improvement protocols that improve efficiency and achieve immediate and sustainable results. Facing unprecedented upheavals in distribution and fulfillment, North American dealers sought out the trusted insight and expertise that Resource Automotive, with nearly a half century in the business, brings to every client.

Facing these same pressures, our consumer goods segment produced near record results with an actual increase over 2008, in both gross written premiums and fees. With a significant boost from a national program for a Big Three automaker, the momentum continued throughout the year. To better address the opportunity presented by third party administrator programs, a team dedicated to identifying potential partners resulted in several large account gains. In addition, two major electronics manufacturers with global recognition joined our client list. We expanded our offerings into the medical and fitness equipment product markets. With programs designed to cover repairs and loss, we partnered with the countrys largest hearing aid claims administrator, while launching new programs designed to address the risks associated with fitness equipment repairs and replacement. Central to our success in 2009 was the inability of many of our competitors to withstand the seemingly endless tests posed by the recession. As a result, we became the benefactor of a flight to quality. Our highly regarded Virginia Surety Company, Inc., with a reaffirmed rating of AExcellent from A.M. Best, continues to provide safe harbor for those seeking stability and underwriting expertise in the consumer goods industry. In any year, our North American results would be outstanding. In 2009, they were exceptional.

Most often, however, leadership results from a clear vision, coherent strategy, and the commitment to continually measure, innovate and execute. When performed with consistency, these elements assure a matchless competitive advantage, in any market, anywhere in the world. 2009 was characterized by the individual and collective leadership of the more than 2000 members of The Warranty Groups worldwide family.

Europe
Despite facing challenges similar to those in the US, our European segment achieved a 6% increase in pre-tax income over the prior year. Responding to the downturn with a vigorous initiative to acquire new business, Europe brought on significant new revenue streams. While the competition suffered the burdens of low production and high loss ratios, we extended our conquests throughout the region, including strong gains in new business for our automotive units in Italy, UK, Poland and Finland. Our team also captured the underwriting of one of the largest consumer retail companies in the UK as well as other large operations in Poland. Similar wins were tallied in Belgium, Spain, UK and Holland in the banking and financial services sector. In other initiatives, Romania will be online in 2010. Unlike the US, individual countries throughout Europe had differing entry points into the recession. It is expected that their exiting will be asymmetric as well, which, coupled with new business wins, means a growth curve can be expected. With many European initiatives similar to the US Cash Allowance Rebate System creating a spike in 2009 for automotive sales, the anticipated thawing of the credit markets is expected to provide a more natural and sustained pattern of growth. This bodes well for consumer goods sales in general, pointing to a continuation of the momentum generated through client acquisition in 2009.

Drawing on our diverse intellectual and cultural resources, Facing an environment that demanded agility, flexibility and focus, our global team identified ways to be more productive by examining legacy practices and encouraging reinvention.

ASIA AND LATIN AMERICA


The performance of our International segment in 2009 compellingly validated The Warranty Groups strategy of leveraging the synergy of our product and geographic diversity. With the US under serious economic pressure, the case for dedicated operations in other markets became even more convincing and drove our results to record levels. Having benefitted from first-to-market presence throughout Latin America and Asia, our organization was well positioned to participate in these thriving economies. As counterpoint to US challenges, these markets saw upticks in consumer spending and more amenable credit markets. As a result, combined revenues improved 17% over 2008. In China we saw continued growth, and our partnership with the countrys largest electronics retailer generated record revenue. With a large percentage of the population moving toward automotive purchases for the first time, our legacy of best practices for retail outlets is our entre to share in this historic development as well. Having opened our Shanghai office in 2006, our market intelligence moves us quickly through the learning curve in each segment we address. In-country operations legitimize our value proposition and position us very positively as compared to the cut and paste approach used by many of our competitors as they impose US approaches on foreign opportunities. Brazil continued to be the bellwether for Latin American opportunity. With real GDP growth of 5.1% and a commensurate increase in GDP per capita, discretionary spending on automobiles and electronics increased, and we were able to capitalize. Our entry into Peru further broadened our base and demonstrates our commitment to this sizable opportunity. As the Asian and Latin American markets enjoy robust growth, The Warranty Group is an active participant.

As we lead the industry into new markets, we find that imagination is boundless. Each associate brings a new perspective, adding more color to the fabric of our company and affirming our conviction that leadership is a moving target, and that our people are our promise.

CSR
With success comes responsibility to our customers, our stakeholders and the environment. In our third year as a standalone company, The Warranty Groups commitment to corporate citizenship gained traction in many vital areas. Through a thoughtful approach to volunteerism, corporate giving and sustainability, our almost 2000 colleagues became actively engaged in promoting the companys role as steward of our resources. The introduction of The Warranty Group Cares resulted in over 30 non-profits around the globe benefiting from record levels of cash and in-kind donations. Our Global Ambassadors team supported our volunteer efforts, bringing unprecedented hours and commitment to select causes, further embedding our company into local cultures. An associate-driven, cost-cutting program transformed legacy practices relative to paper-sourcing and energy consumption and introduced the purchasing of Fair Trade goods throughout the organization. These efforts add to one of The Warranty Groups core values the extension of the useful life of consumer goods. Each time a product is repaired and returned to service, the impact on the environment is positive, every day, in 36 countries around the globe. Each new market presents the opportunity to give more than we receive, and with the spirit of compassion and responsibility demonstrated by The Warranty Group family in 2009, we approach the year ahead with even more focus and ambition.

board of directors

corporate officers and management

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 Mark H. Mishler President and Chief Operating Officer The Warranty Group, Inc. Thomas C. Ramey Chairman and President Liberty International

David L. Cole Chairman and Chief Executive Officer The Warranty Group, Inc. Mark H. Mishler President and Chief Operating Officer The Warranty Group, Inc. James L. Donaldson Executive Vice President Asia and Latin America TWG Warranty Group, Inc. Michael F. Frosch Senior Vice President TWG Warranty Group, Inc. President and Chief Executive Officer TWG Innovative Solutions. Barbara J. Goff Senior Vice President Global Human Resources The Warranty Group, Inc. Anthony M. Jackovich Senior Vice President Chief Information Officer The Warranty Group, Inc. Jeanne T. Jurasek Senior Vice President Director of Internal Audit The Warranty Group, Inc. Robert P. Mancuso Senior Vice President Corporate Communications Investor Relations Officer The Warranty Group, Inc.

Felix A. Mantilla Senior Vice President Chief Compliance Officer The Warranty Group, Inc. John P. McGarrity Senior Vice President Corporate Secretary General Counsel The Warranty Group, Inc. Thomas P. Murray President and Chief Operating Officer Resource Automotive, Inc. Brian K. Ollech Senior Vice President Global Corporate Controller The Warranty Group, Inc. Roger C.J. Powell Senior Vice President European Operations The Warranty Group, Inc. John H. Serafin Senior Vice President Chief Risk Officer The Warranty Group, Inc. David I. Vickers Executive Vice President Chief Financial Officer The Warranty Group, Inc.

Independent Auditor Ernst & Young LLP

consolidated statement of income (in thousands)

December 31 Revenue Premium earned $

2009

2008

939,487 $ 168,247 88,288 12,138 (11,160) 710 1,197,710

1,027,766 183,931 101,641 (14,357) (13,160) (2,687) 1,298,981

Financial Summary

Contract fees and other income Net investment income Net realized available-for-sale investment gains Other-than-temporary impairment losses on investments recognized in 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 taxes Income tax expense Net income $

551,674 159,136 80,811 22,546 3,869 2,858 240,062 1,060,956 136,754 41,690 95,064 $

581,296 43,011 170,463 42,469 11,049 8,660 259,188 1, 116,136 182,845 60,423 122,422

The Warranty Group, Inc. Years Ended December 31, 2009 and 2008

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

consolidated balance sheet (in thousands)

December 31 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 recoverable Premiums 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 acquired Other intangible assets Other assets Total assets $ $

2009

2008 Liabilities and stockholders equity Reserves: Unearned premiums

December 31

2009

2008

2,387,373 189,591 889,781 3,466,745

2,401,040 175,915 1,095,519 3,672,474

1,792,061 328,365 25,304 23,915 4,421 2,174,066 57,326

$ 1,515,443 474,357 26,173 17,653 2,818 2,036,444 46,762

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

18,482 124,420 194,000 257,012 4,060,659

15,277 122,282 196,000 256,209 4,262,242

32,842 716,908 138,925 888,675 24,784 3,158 15,116 465,110 570,876 42,801 343,659 62,851 80,292 94,421 4,823,135 $

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

shares authorized, 51,132 shares issued and outstanding Common stock, par value $0.001 per share, 100,000 shares authorized, 57,340 and 55,824 shares issued and outstanding at December 31, 2009 and 2008, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive (loss), net of taxes Total stockholders equity 10,208 220,832 25,229 762,476 9,437 168,520 (51,097) 633,067 506,207 506,207

Total liabilities and stockholders equity

4,823,135

4,895,309

For a copy of our 2009 Ernst & Young audited financial statements, please call 312.356.2320.

You might also like