Crawford & Co (CRD.A) 2009 Q3 法說會逐字稿

Good afternoon. I will be your conference facilitator today. At this time, I would like to welcome everyone to the Crawford & Company third quarter 2009 Earnings Release conference call. In conjunction with this call, a supplementary financial presentation is available on our website at www.crawfordandcompany.com under the Investor Relations section. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. Instructions will follow at that time. (Operator Instructions). As a reminder, ladies and gentlemen, this conference is being recorded today, Monday, November 9, 2009.

Some of the matters to be discussed in this conference call and in the supplementary financial presentation may include forward-looking statements that involve risks and uncertainties, including statements regarding liabilities associated with our Defined Benefit Pension Plan and our ability to pay dividends in the future. The Company's actual results achieved in future quarters could differ materially from results that may be implied by such forward-looking statements. The Company undertakes no obligation to publicly release revisions to any forward-looking statements made in this conference call, to reflect events or circumstances occurring after the date of the call or to reflect the occurrence of unanticipated events. For a complete discussion regarding factors which could affect the Company's financial performance, please refer to the Company's Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission, particularly the information under the headings, business, risk factors, legal proceedings and management's discussion and analysis of financial condition and results of operations.

This presentation also includes certain non-GAAP financial measures as defined under SEC rules. As required, a reconciliation is provided for those measures to the most directly comparable GAAP measures which is available on our website at www.crawfordandcompany.com/quarterlyreleases.

I would now like to introduce Mr. Jeffrey Bowman, President and Chief Executive Officer of Crawford & Company. Mr. Bowman, you may begin your conference.

Thank you. A warm welcome to our investors, clients and employees this afternoon for a discussion of our 2009 third quarter and year-to-date results, together with our current earnings guidance for 2009. I am Jeffrey Bowman, President and CEO of Crawford & Company. Joining me from the global executive management team this afternoon are Bruce Swain, our CFO, and Allen Nelson, our General Counsel and Chief Administrative Officer.

Today I will outline important claims, industry trends and opportunities we face during the balance of 2009. I will also discuss the challenges we see in our insurance carrier and self insurance market sectors, as well as our outlook for the legal settlement administration segment, and conclude with comments on the group financial highlights for the third quarter. Bruce will then review the third quarter financials in more detail. And I will wrap up with a brief review and commentary on the business segment operating performance and full 2009 year guidance.

There is no doubt that the global economic outlook continued to be challenging in the third quarter. We see this in a number of areas. Particularly, continued deterioration in the US jobs and employment outlook. In the US, an additional loss of 768,000 jobs for the period pushed the third quarter unemployment rate up to 9.6%, and the jobless rate in October is now 10.2%. During conversations globally with our clients, we continue to react to their requirements to improve our service and client relationship. One of the highest priorities is the insurance carriers' expectations regarding the handling of claims including, claims provider service levels and pricing models. We continue to see many clients making decisions on their claims handling providers based on expectations for increased speed, improved service, and operational efficiencies in claims handling. And with that, a greater focus on customer service to gain a competitive advantage. We are able to provide claims solutions to insurance carriers and their policyholders that involve centralized claims solutions that meet these objectives.

The second comment I would make is that the consolidation of the number of vendors among our clients is a growing trend today. The insurance industry continues to come under increased pressure to reduce expenses resulting from lower investment income and rising loss costs. The outsourcing of claims to providers such as Crawford allows for a better cost of delivery by turning fixed cost in-house claims departments into a variable cost and reducing the client's need to invest in claims technology. This continues to be a positive for Crawford in its many discussions with clients. Also, as a result of these discussions, we are seeing our clients challenge us to be more responsive in our claims handling, as they demand sustainable performance improvement through better control of indemnity spend, improved business processes via special automation, and increased data analytics. We are, again, well positioned to handle these challenges.

We also constantly say that improving the ease of doing business with our clients is paramount to our business proposition and allows us to leverage off of our operational strengths in all our business units. Globally, there is more discussion on service differentiation, resulting from handling simple, low value claims through to complex, high value claims. And this is where our recent investments in technology is playing a large part in our current operational success.

Turning to operating results, our consolidated revenues reflect these trends as well as declines driven by currency shifts. Revenue growth on a constant dollar basis continued in our international operations. And excellent growth was produced in our legal settlement administration business unit. Recent declines in claims frequency have affected the US Property & Casualty business unit. Increased unemployment in the US ,as I discussed a moment ago, has negatively affected the Broadspire business unit. More on this in a moment.

For the third quarter, we have demonstrated operational progress as indicated by our improvement in net income before the impairment charge, from $6.9 million in the 2008 third quarter to $7.2 million in 2009, representing an increase in EPS. As you can see, when you back out the third quarter foreign currency impact in 2009, our revenues decreased by $6.4 million due to declines in Broadspire and US Property & Casualty.

Our net income attributable to Crawford & Company increased $3.9 million or $0.07 per share before the 2009 effects of goodwill impairment, increased pension expense and foreign exchange. The net loss for the quarter included the goodwill impairment, increased pension costs of $0.05 and a currency impact of $0.01. After reflecting these items, adjusted earnings per share increased to $0.14 from $0.13 in the 2008 third quarter. This was a solid operating performance compared to the first two quarters of 2009, in a difficult claims environment,. and when weighed against the turmoil in the insurance industry and the economy in general.

We had reported in the 2009 second quarter that the Company recorded a preliminary non-cash, non-operating goodwill impairment charge. In the third quarter, we completed the interim goodwill impairment analysis for Broadspire and determined that all of the Broadspire remaining goodwill was impaired, resulting in an additional impairment charge of $46.9 million. We continue to focus on a strategy to improve our balance sheet and cash flow through working capital management and debt reduction.

I am pleased to report that we recently completed an amendment to our credit agreement that will give the Company improved financial flexibility in the future. After Bruce provides a detailed financial review of the segment results, I will discuss our operational business unit and updated guidance for 2009. That concludes my initial remarks.

Bruce, would you please review the Company's overall financial performance for the third quarter?

Company-wide revenues before reimbursements decreased by 8% in the 2009 third quarter, to $245.8 million from $266.9 million in the prior year's third quarter. This decrease is primarily attributable to a negative foreign exchange rate impact in our international operation segment and weakness in revenues produced in our Broadspire and US Property & Casualty segments. These factors offset double-digit growth in our legal settlement administration segment, and organic revenue growth when measured on a constant dollar basis in our international operations.

During the 2009 third quarter, the Company completed its interim goodwill impairment analysis of the Broadspire segment which it began during the 2009 second quarter. As a result of this analysis, the Company recorded an additional non-cash impairment charge of $46.9 million, or $0.90 per share. This impairment charge does not affect the Company's liquidity or cash flows and has no effect on the Company's compliance with the financial covenants under its credit agreement. Substantially all of this charge is not deductible for tax purposes. Following this charge, the Company has no goodwill associated with its Broadspire operating segment.

Our net loss attributable to Crawford & Company totaled $39.5 million, including the impairment charge, as compared to net income of $6.9 million we reported in last year's third quarter. The third quarter 2009 loss per share was $0.76, compared to diluted earnings per share of $0.13 in last year's third quarter. Excluding the impairment charge, third quarter net income attributable to Crawford & Company would have been $7.2 million, and earnings per share would have been $0.14.

The Company's selling, general and administrative expenses, or SG&A, totaled $53.8 million or 21.9% of revenues in the 2009 third quarter, decreasing approximately $2.8 million from $56.6 million or 21.2% of revenues in the prior year quarter. This decrease in cost is primarily due to lower professional indemnity self insurance and reduced compensation expense.

As compared to the 2008 period, during the 2009 third quarter the US dollar was stronger against most of the major foreign currencies in which we operate globally. International revenues grew nearly 1% in the 2009 third quarter on a local currency basis but after reflecting the negative impact of exchange rate fluctuations, international revenues declined by 11.8% in US dollars, to $101.7 million. Excluding the negative effect of exchange rate fluctuations, our revenue growth in local currencies primarily reflects increases in our Americas operating region and the positive impact of claims generated in our Asia-Pacific region from recent CAT activity. International operating earnings declined to $7.3 million in US dollars during the current quarter, down 15.5% from last year's third quarter operating earnings of $8.6 million. This reflects a decrease in the operating margin from 7.4% in the 2008 third quarter to 7.1% in the 2009 quarter. When measured on a constant dollar basis, international operating earnings were $8.3 million in the 2009 period, reflecting an operating margin of 7.1%.

Revenues from the US Property & Casualty segment totaled $52.3 million in the 2009 third quarter, decreasing 7.1% from the $56.2 million reported in last year's third quarter. Revenues generated by our catastrophe adjustors totaled approximately $6.3 million in both the 2008 and 2009 third quarters. The revenue decrease was driven by a reduction in strategic warranty related revenues, as we have been winding up several inspection projects, and a reduction in overall industry-wide claim frequency which has impacted our field operations.

Operating earnings in our US Property & Casualty segment totaled $4.9 million or an operating margin of 9.3% of revenues in the 2009 third quarter. This is compared to operating earnings of $6.8 million or 12.1% of revenues in the prior year quarter.

Revenues from our Broadspire segment decreased to $70.4 million in the 2009 third quarter, down 8.4% from $76.9 million in the prior year quarter. Overall claim volumes in this segment were down during the 2009 third quarter, reflecting sharply lower industry-wide Workers' Compensation claim referrals as a result of weak US employment levels. Broadspire's operating earnings in the 2009 third quarter totaled a loss of $1.2 million, or 1.7% of revenues, decreasing from operating earnings of $1.1 million or 1.4% of revenues in the 2008 third quarter. The Company's impairment charge did not affect the segment operating results of Broadspire.

Legal settlement administration revenues comprised of class action and bankruptcy claims administration services rose 15.9% in the 2009 third quarter, to $21.3 million, up from the $18.4 million in the prior year quarter. This growth reflects the positive impact of several major bankruptcy and securities class action administration projects awarded to the Company during 2009. Operating earnings totaled $4.1 million in the 2009 third quarter, or 19.2% of revenues as compared to $2.9 million or 15.5% of revenues in the prior year period.

Legal settlement administration continues to have a very strong backlog of projects awarded, totaling approximately $55.4 million at September 30, 2009, as compared to $43.5 million at September 30, 2008.

Our cash and cash equivalent position at September 30, 2009 totaled $55.1 million, as compared to $73.1 million at December 31, 2008, and $56.8 million at September 30, 2008. Our investment in unbilled and billed receivables has increased by $7.5 million in US dollars during 2009, reflecting a three day increase in days sales outstanding or DSO. Our total debt has declined in 2009 by $3.7 million.

Stockholders' equity declined by $105.2 million, reflecting the $140.9 million in impairment charges recorded during the 2009 second and third quarters. Cash provided by operations totaled $9.8 million for the 2009 nine month period, compared to $33.4 million provided in the prior year period. This $23.6 million decrease was primarily due to lower net income during the 2009 period, before reflecting the impact of the impairment charges and higher working capital requirements in 2009. The Company's cash requirements typically peak during the first quarter and decline over the balance of the year. Our free cash flow stood at a negative $8.9 million for the 2009 nine month period, decreasing from the $10.6 million in the 2008 period.

On November 2, the Company amended and extended its existing credit agreement with its lenders. Among other provisions, the amendment provides for a two year extension of the revolving credit facility from October 30, 2011 to October 30, 2013 and provides Crawford with increased financial flexibility. The amendment provides that Crawford may increase the aggregate amount of its debt under the credit agreement by up to $50 million, and may also issue other unsecured debt of up to $200 million. The amendment also updates certain covenants to allow for increased financial flexibility while increasing the applicable interest rates. That concludes my comments, Jeff.

Thanks, Bruce. I will now review the challenges, progress and outlook for each of our business units, starting with the international operations. As reported earlier, we saw a revenue growth of nearly 1% before currency impact. For the third quarter, international operations represented 39.5% of the Company's total revenue, compared to 42.7% in the previous year. When we look at claims referred on a quarter-to-quarter basis, comparing quarter three 2009 to quarter three 2008, we see a decrease in claims of 7.9%. In the third quarter, UK, Europe and Canada saw a lower claims assignment. In the UK and Europe, the decrease has been affected by generally lower market volumes, due to benign weather. In Canada, both claims received and outstanding have declined steadily. The major reason is a continued softness in the Ontario auto market and a reduction in desktop handled claims from our major clients. We continue to adjust our cost base and improve our efficiencies in these operations.

The US Property & Casualty division had a decrease in revenue of 7.1%, reflecting a case decrease of 15.4% for the quarter, and 3% for the year-to-date. The slowing number of casualty claims we previously reported reversed in the third quarter and increased for the first time since quarter one 2008. This was a result of increased focus on our casualty business proposition and increased sales activity. We continue to see weakness in the US transportation sector, which is down approximately 30% over 2008. And our catastrophe related claims also decreased in the quarter by 30% due to no hurricane activity this year. I will discuss CAT trends more in a moment.

Two other adverse claim trends related to vehicle inspections and a significant fall-off of assignments in the warranty division. We have seen warranty inspections significantly reduce from 2008 levels, as long-running class action contracts expired. We have significantly reduced staff in this area in response to the claims reductions.

However, we have been appointed by the Federal court in New Orleans to perform a small number of inspections related to the Chinese drywall litigation. These are early days in the development of this case but it represents an encouraging development for the warranty division.

As a result of investments we incurred in the prior year in employees, training and quality, we are delivering a market leading product to our clients. This is a significant strategy linked with our technology implementation of CMS-II. We are benefiting financially and operationally from increased process efficiencies to take a bigger share of the claims market as our clients consolidate independent adjustors they do business with. Through our increased sales and marketing, we are beginning to see more substantial outsourcing opportunities from clients in the volume claims business as we grow the business process outsourcing arena.

We are also expanding our global technical services capabilities, through the addition of Technical Loss Adjusting Association, a recently announced acquisition of a group of high value complex claims adjustors. It is worth noting that Contractor Connection, our leading US direct repair network, is continuing to grow. We are carefully monitoring the case volume decrease we have seen in September and October. Our analysis is that the industry-wide decrease we are seeing is linked to benign weather events. Our clients are telling us that the influx of claims at this time is slow.

Property claims services estimates that the year-to-date property claims number is 50% lower compared to 2008 levels. And while our case volumes have decreased 3% year-to-date, we have not seen the same reduction reported by BCS due to increasing market share.

Our continued strategy comprises, one, increasing our sales and marketing around the recently issued Crawford system of claims solution. Two, the introduction of a new command center in Atlanta that provides effective central oversight for our claims organization. And three, the refinement of a business process outsourcing model which will enable the delivery of more comprehensive end-to-end claims processing for our insurance carrier clients.

We launched the improved business process outsourcing model in the second quarter of 2009 and have a number of both new clients and a growing pipeline of active prospects. During 2009, our US Property & Casualty businesses have made targeted cost reductions in anticipation of slower revenue and lower margin in the fourth quarter, without compromising service and quality. There were 27 CAT events reported by PCS, property claims services, in the year 2009, versus 35 for the year-to-date 2008. We reported catastrophe claims revenue of $6.3 million for the 2009 third quarter, as compared with $6.3 million in 2008. We had $4.9 million in the first quarter and $7.2 million in the second quarter of 2009. While revenue in the year was an improvement over 2008, it arrived in a steady flow of events rather than radical deployment spikes.

The fourth quarter is projected to be significantly down due to no hurricane activity in 2009. In the fourth quarter of 2008, we generated $11.3 million in catastrophe revenue. As noted by ISO, insured catastrophe losses totaled $7.5 billion during the first half of 2009, down $3.1 billion or 29.2% from $10.6 billion in the first half of 2008. Catastrophe losses have remained tame during the third quarter of 2009 as well, especially given that September is the peak of the hurricane season. We were referred 8,700 claims in the 2009 third quarter, versus 12,500 claims in 2008.

Now moving on to our Broadspire business unit. The business unit under the most pressure today from the US economic challenges is Broadspire. A significant portion of the TPA industry revenue is tied to Workers' Compensation claims handling, with associated managed care fees. In the TPA market, a deteriorating unemployment and credit market impact outlook has negatively affected our business. US TPA competitors are becoming very aggressive in pricing for new business and renewals as risk managers have become increasingly sensitive to cost. Risk managers are looking for ways to reduce administrative costs with decreasing regard to the future effect on indemnity spend. This has created a disconnect on pricing and cost in the marketplace which is fueling short-term behavior with little concern for the long-term consequences.

We stated last quarter that many customers were continuing their payroll down sizing and we should expect that there will be some contraction of the existing business in Workers' Compensation claims if unemployment increases as we go through this year. Last week's unexpected unemployment rate jump to 10.2% means the US payrolls have now declined for 22 consecutive months since December 2007.

We are targeting our sales and marketing efforts in this segment to drive market share gains to counteract industry-wide claims decline. And we remain optimistic about the long-term future of this business unit. We experienced a 10.1% decline in claims in the third quarter, versus 2008, which is consistent with the frequency decline of the whole Workers' Compensation market. However, you can see that claims reduced significantly in the fourth quarter of 2008, but have stabilized in 2009. This decline in revenue came from a decline from our existing customer base.

Let me discuss some factors we are seeing. Workers' Compensation, lost time durations, are starting to expand which pushes inventories higher. There is less opportunity to return people to work in a bad economy, and less interest in settling claims as few jobs exist and the prospect for employment is minimal. We may also be seeing a drop in reported claims by those employers remaining. Broadspire has revamped their focus and resources and their sales and marketing team to better sales services in the claims and medical management marketplace. As previously reported, we were recently notified by a major client of our Broadspire segment that the client does not intend to renew its existing contract with us, upon termination of that contract at the end of December 2009. This will affect claims volumes beginning in January 2010.

We have during the third quarter had excellent client retention of 96.9%. However, even though our clients are renewing, there can be contraction on the existing business. We continue to get more local sales attention, with field case managers spending more time on developing local business and having national sales executives focus on national accounts and the disability, health carrier yesterday markets. We currently have an active TPA pipeline. And the key objective in this marketplace environment is to convert those prospects to won accounts as quickly as possible.

We reached an important milestone in the implementation of our technology system, RiskTech, that has enabled us to exit a major hosted data center contract in September, and eliminate significant fixed cost. We also recently announced and branded the UK TPA operation under the Broadspire name. We are providing marketing, account management pricing and operational practices and knowledge support to the UK operation. During the third quarter, we also introduced the Broadspire brand into Europe. There are no changes to the Company's reporting or management structure.

A continued positive has emerged in the third quarter in the legal settlement administration segment, which is our Garden City Group operation. Where we continue to see significant increase in bankruptcy cases received. We projected last quarter a steady increase in revenue in our bankruptcy cases over the next few quarters, which is now reflected in our results. We have been fortunate in securing further high profile cases in the third quarter. The economic conditions that have set the stage for robust growth in our bankruptcy division are also having a negative impact on the security class action environment. In short, companies and their insurers are just not settling security class actions at the pace we saw in previous years. We remain confident that the class action market will turn around, but we cannot predict when that will happen.

While we await that turnaround, we expect to benefit from the significant growth in the bankruptcy cases we have received. In respect to the bankruptcy marketplace, we are now solidly among the three main competitors in this area, as a result of the large current case assignments made in the first three quarters of 2009. The competition in this business line is fierce and we continue to invest in talent and other resources to grow our operations further. In the past years, our security class actions practice has been and still is a critical part of our success, particularly when we have been successful in getting the largest cases in this sector. In 2009, there have not been as many of these case,s but we have done a good job in getting a significant share.

Overall, the Garden City Group has been retained in 218 assignments, both class action and bankruptcy, versus 137 at this time last year, a 59% increase in assignments. We are very pleased with our performance. Although we don't know when, we remain convinced that the class action marketplace will turn around and we expect that we will be benefiting from the growth in the bankruptcy market when the class action marketplace turns.

Finally, our 2009 third quarter backlog at the end of September was $55.4 million, up from $43.5 million in the same quarter 2008.

Now looking at the guidance for fiscal 2009. We are conservatively updating our previously issued guidance for 2009 as follows. Consolidated revenues before reimbursement between $970 million and $975 million. Consolidated operating earnings between $48.5 million and $51.5 million. Consolidated cash provided by operating activities between $30 million and $35 million. After reflecting stock-based compensation expense, net corporate interest expense, customer relationship intangible asset amortization expense, special charges and credits, and income tax, net loss attributable to Crawford & Company on a GAAP basis between negative $120 million and negative $122 million or negative $2.32 to $2.36 loss per share. Before reflecting the special charge related to the goodwill impairment, net income attributable to Crawford & Company on a non-GAAP basis between $19.1 million and $21.2 million, or $0.37 to $0.41 diluted earnings per share.

I will close by stating that while the goodwill impairment charge has substantially impacted our reported GAAP results for this year, we are encouraged by our solid operating performance to date. We are as an organization confronting reality in all the business units. The conservative reduction in the guidance is in respect to the uncertainty regarding the claims assignment volumes in the US for the fourth quarter. The management team is responding to this anticipated reduction, continuing to build on the operational improvements we have made, and adjusting our cost base accordingly.

We will not deviate from our priorities as they have been outlined before. They remain three-fold. One, a disciplined approach to expense management and working capital. Two, focusing on improving operational efficiency and delivering results to our clients. And three, most importantly, securing new business wins for all of our business units.

For the balance of 2009, we will continue to manage the corporation to ensure we are building a strong foundation for the corporation to capitalize on the opportunities presented. And despite some of these negatives around the economy, and giving our market strength in our business segments and the diversity of earnings for our corporation, we continue to remain optimistic about the potential growth opportunities as we reposition the corporation.

Thank you for your time and we look forward to your questions.

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Mark Hughes with SunTrust. Mark, please go ahead.

Thank you very much. Good afternoon.

Good afternoon, Mark. How are you?

The claims trends, I know when you do have severe weather there's often some backfilling that gets done that may not show up in the CAT volume. To what extent do you think this fourth quarter Q3 into Q4 weakness is less of that, or is there some other underlying issue going on?

Well, I mean, the first fact, Mark, is that obviously our CAT revenue was down for the year. We have been having individual incidents throughout the whole of the year, but last year compared to this year, we definitely had backfilling of the office. And on the property claims at this moment, we're seeing very much a stabilization of those claims, similar to 2008. What is encouraging is that our casualty claims are beginning to increase, which is a result of a lot of effort we put into selling and putting people in front of our clients to talk about our casualty capabilities.

So I think the property claims, it's really the catastrophe and the increase in the nominations we've been getting, but with a general decline in the overall number of claims in the whole marketplace.

The transportation, I think you said in the US was off 30%. Was that customer-specific or was that fairly broad?

That's very broad. I mean, it's purely on the decrease in mileage, and the decrease in goods that are being transported around the country. So therefore, we're seeing far less accidents and, therefore, a reduction in the number of claims.

Right. Is that to say since you live somewhat on the overflow, when overflow is reduced, that has a disproportionately large impact on your business?

Yes. We would get that.

And then international claims volume, I guess you spoke about the benign weather, the Canadian auto market. Anything else you can add there? You had a fairly solid growth last quarter. This quarter, just up slightly. Is it the same issues we're talking about?

There's always a seasonal trend in the third quarter for the international group as well. If there's not active weather on a global basis. It's been very limited active weather on that basis. You do get the effect of vacations in the third quarter, especially in the European arena. We've seen really a number of clients reducing their number of claims outsourced to us. It's a 3% decrease for the whole year which isn't really pushing out any individual trends. I mean, we're very bullish on our European operations. We've got a very solid UK operation. Our Asia-Pacific operations are performing well. A little bit of softness in our Canadian market.

Then final question, the outlook now for cost savings in Broadspire, what kind of improvement as we look into 2010?

Well, we've got the hosted data center reduction which we've talked about for a long while. That will come in in the latter part of the fourth quarter. On an annualized basis, that's approximately about $6 million plus .

Mark, this is Bruce. We have that as a positive for sure. And that's something that we've been managing towards for the past several months is to get RiskTech implemented in the field such that we can turn off that external cost. And so we're pleased to be able to do that. We'll see some pressure related to the loss of the client that's going to start in the beginning of 2010. While we've got the ability to turn the direct cost, the variable cost off associated with that client. There will be some overhead cost that gets -- that's going to be more difficult to turn off and some of that might get stranded.

In terms of overall outlook for Broadspire, certainly the business -- but for the economic decline in the US and the contraction in employment levels that we feel very positive about on the long-term basis, until the US starts creating jobs again, it's going to be -- it's going to put pressure on that business. And so it really puts the onus on us to increase our market share and grow our top line. Because in that business, it's difficult if not impossible to cut your way to long-term profitability. So the key objective for us is to stabilize and grow the top line.

All of that being said, we are actively looking at that business as well as our other US businesses and support functions, to make sure that we're operating as efficiently as possible now and in the future.

Thank you.

Your next question comes from the line of Adam Klauber with Fox-Pitt. Adam, please go ahead.

Thanks. Good afternoon, everyone.

Good afternoon, Adam.

Hi, Adam.

The US growth, revenue growth, if you look at the last couple of quarters, that segment was growing 8%, 9% or so. The segment was down more like 7% so obviously a good swing. And I think you've laid out three factors, property is really dropped off because weather has been good which is one factor. Warranties have dropped off. And then I think you also said transportation. Could you roughly let us know what the split of that 15 point swing, how much came from property, how much from warranty and how much from the transportation?

Yes. I think that you're looking at the quarter-over-quarter case decline. Our vehicle services claims are down about 5,000 quarter-over-quarter. So if you look at the total 15.4% decline, that's about 20,000 cases, let's say. Five thousand of those are vehicle related. Within our strategic warranty business, that's going to account for about a 9,000 case decline quarter-over-quarter. And that's a result of several long-lived class actions that we were handling that are winding down and that are completing this year.

The other big driver is going to be in catastrophe services, where last year we had a large spike of incoming claims as a result of hurricanes, Dolly and Gustav and Ike. Those claims came in relatively late during the third quarter such that the claims came in, we deployed adjustors, but the work on those claims really wasn't done until the fourth quarter. So most of the revenues associated with that was recognized in the 2008 fourth quarter. And those cases are down about 4,000 quarter-over-quarter. So of that 20,000 case decline, 9,000 of it in strategic warranty, another 5,000 in vehicle and the remainder essentially is in catastrophe services.

Okay. Okay. And you how --

Sorry, what I was going to say, Adam, what we do see our opportunities in the US marketplace to really gain market strength is in the business process outsourcing, selling that we're doing through the Crawford system of claims solution which we have a number of active prospects looking at that in the moment, where we're effectively taking over the whole of the claims process. And that will start to increase, obviously, the claim count on the the property area, which is our -- Property & Casualty area, which is our main focus.

Right, right. And how big is the warranty book overall?

In terms of revenues?

Either way, revenues or number of claims, just to give us some sense.

Yes, I mean, from a number of claim perspective, it's about 10%.

Okay.

And those claims tend to be what we would call high frequency, low severity, so they're going to behave similarly on our books to, say, a vehicle services claim, where we're going out and we're doing a limited inspection on the property. And so they don't typically command very high service fees, at least historically.

Okay. Okay. And is it just part of that book is dwindling down or do you think a good part of it will be reduced?

Well, there's some contracts that are coming to the end of their life that were linked up to class actions. And there are a number of other projects which are linked to warranty tie-up arrangements with clients which have an ongoing life. But it's really the wind-down of the class action contracts which have come to an end. The Chinese drywall, I mean, that one has a potential life in the future, depending on what happens with the courts over the next few months.

Okay. And on the flip side, you did say that casualty trend actually turned around for the first time?

Correct. Absolutely.

And that's seems like the curve has been going the right direction. I guess, how significant was that move and do you think that will continue as we go into the next couple quarters?

Definitely, we see it continuing. We've put increased emphasis when we saw the reduction. And really that's not marketing, our casualty adjustors to penetrate our clients as well as we should have. In the past three to six months, we've really been concentrating with our sales team on clients within the casualty business and that has, from our perspective, has a lot of upside.

Okay. Also, in the press release it showed that I think your corporate and unallocated expense was down materially from this year compared to 3Q last year. Could you explain that?

Sure. That's a line item that can have some variability for us and it comprises our Board and CEO costs. It also has our US Defined Benefit Pension Plan expense in there as well as certain bad debt and self-insured expense for recovery. In the third quarter this year, we had a favorable overall experience in our self-insured reserves. And this is something we have actuarially determined by an independent actuary each quarter. So we've seen improvement in our ENO loss history. And a lot of that's directly attributable to the focus on the training and quality that we have in the business and that's paying some dividends to us.

We've also seen better self-insured auto experience and self-insured medical costs are down for us year-over-year. And we saw the benefit of that in the third quarter. As you know, we took our projection for the year down. And as such, we had some reductions to incentive compensation cost that we reported in the quarter. And while that is normally allocated out to our business, it's done on a one month lag. And so that reduction is sitting in our corporate unallocated cost line item as well. But that's something that we'll be getting allocated back out to the business in the fourth quarter. Those are the two main drivers within that line item.

In the prior year, we had a sublease cost that was recorded in that line that is not present this year, so that gives a favorable comparison as well.

Okay. So it sounds like it will vary, but this could be a lower than average quarter. Is that fair?

I would say that this is a lower than average quarter. That's fair.

Okay.

And the real variable there is our self insured costs which can fluctuate.

Right. Right. Okay. Well, thank you very much.

Thanks, Adam.

(Operator Instructions). I would now like to turn the conference over to Mr. Bowman for closing remarks.

Thank you. I'd like to thank everyone for joining us this afternoon. Wish you all a great week, and we'll talk to you in the next quarter. Thanks very much.

Thank you for participating in today's Crawford & Company conference call. This call will be available for replay beginning at 6:00 p.m. today, through 11:59 p.m. on November 16, 2009. The conference ID number for the replay is 38382799. The number to dial for the replay is 1-800-642-1687, or 706-645-9291. Thank you. You may now disconnect.