I am sure I speak for all of my fellow Board members when I express my confidence that the business will continue to prosper on these solid foundations.
The world around us
Market conditions remain very challenging across most sectors of the marine industries – with dry bulk and offshore being particularly hard hit by excess supply combined with lower demand for coal and iron imports to China and depressed oil prices respectively. The outlook for 2016 is not promising. According to the IMF forecast in January 2016, any pickup in activity is likely to be more gradual than previously forecast. In advanced economies, a modest and uneven recovery is expected to continue, while the picture for emerging markets and developing economies is varied.
Gard is alert to the challenges that this difficult trading environment has on its Members and clients. The shipowners represented on the Board, and the management who are in day to day contact with the businesses they serve, understand the need both for cost containment and for prompt financial assistance in the case of a casualty. However, we can only do this if the organisation remains financially strong in both good times and bad.
There has been considerable debate on whether clubs should adjust premiums and reserves to take into account the fortunes of their Members. I frankly think that is a very odd notion. The membership is a diverse group of owners active in a variety of market segments going through their individual ups and downs at different times. I think the Gard Board should be concerned solely with the health of Gard. Its job is to ensure that premiums are fair and sustainable, while maintaining reserves capable of coping with the occasional shock to the system and avoiding the necessity of any unwelcome supplementary calls.
IOPC and sanctions
The unfortunate decision, at the end of 2014, by the IOPC 1971 Fund to wind itself up – despite there being outstanding claims against it – has created considerable uncertainty and concerns around the settlement of claims in favour of victims of maritime casualties. Discussions between the International Group of P&I Clubs (IG) and the IOPC Fund have failed to find a solution so far.
The lack of firm assurance on whether or not the IOPC will step up and meet its share of any liabilities arising from casualties under internationally agreed liability regimes is a matter of grave concern for the clubs. I find it remarkable that the IOPC is unwilling to provide certainty for timely claims settlement for the benefit of victims. It is putting at risk a system that has worked well for many years. I do hope that current discussions will soon come to a mutually satisfactory conclusion
Sanctions activity remained a constant throughout 2015 – albeit with the removal of Iranian sanctions moving slowly towards fruition. A problem with all sanctions regimes is that they create ambiguity in their interpretation and application. In the event of a catastrophic casualty involving sanctioned entities, it is highly likely that the third-party victims of such accidents – rather than the sanctions targets – will be those to suffer most.
It is good news that the Joint Comprehensive Plan of Action Implementation Day in January 2016 is a first step in permitting the resumption of trade by and with Iran. However, US primary sanctions are still in force against Iran and other countries, the consequence being that US based reinsurers are not able to make any payments in respect of their share of claims with an Iran nexus. Furthermore, transactions in US dollars for Iran related activities continue to be prohibited. Most banks are still refusing to handle transactions involving Iran which is a further impediment to normal trading with Iran.
An evolving industry
The recent announcement of a possible merger within the IG is to be welcomed and it may trigger further consolidation. Such a development could be a positive for the strength of the IG in the future. From a Gard perspective, we are of a size with which we are comfortable, and which allows us to realise benefits of scale – particularly compared to other members of the IG. We are, however, small compared to other commercial insurers and we should keep an open mind on how we can achieve further growth if the benefits are evident.
The IG is a unique body made up of members pooling risk and jointly buying reinsurance, while competing fiercely in the market place. Any organisation having a membership that both co-operates and competes with each other will inevitably suffer from occasional tensions, and an increasing divergence in size between the clubs may exacerbate those tensions in terms of each club’s changing needs. Diversification is another area where the development of a wider product offering by individual clubs may be beneficial for their Members. I believe, however, that it is vital that the value of the IG pooling system, which has served shipowners and society so well, is not undermined by Members excluding poolable risk from the agreed IG poolable reinsurance programme.
Solvency II came into force for insurance companies in Europe on 1 January 2016. It subjects insurers to a tighter regulatory regime than in the past, including new governance and capital requirements designed to enhance the quality and transparency of the decision making processes and ensures a sound risk and solvency management. Gard has invested considerable time and effort to ensure that it is wholly prepared for the new regulations.
A key objective behind Solvency II is to harmonise EU insurance regulation. As a business with an international membership and network, Gard needs to operate in jurisdictions that offer just such a level playing field in order to compete effectively in the global market.
Ensuring strong governance
During the 2015 financial year, a working group of the Board reviewed the current Gard governance framework structure. It concluded that, while the current structure and governance procedures are good and have stood the test of time, the clarity of responsibility could be improved with some minor changes.
It was determined that the two-tier Board structure should be retained. This consists of a Board of between 20 to 25 directors which reflects the composition of the membership by categories of tonnage and geographical spread, and which is responsible for the management of the group. As well as making decisions on matters of crucial importance for the group, such as premium policy, levy of calls, risk appetite and investment guidelines, the Board sets the overall objectives, strategies and policies. In addition to the Executive Committee, an Audit Committee and a Remuneration Committee have been established to assist the Board in the performance of its functions within defined areas.
The Executive Committee acts as a sub-committee of the Board and is responsible for keeping in close contact with management and providing oversight of execution, compliance and performance. It makes decisions as delegated by the Board and updates the Board outside regular meetings as needed. The CEO and his team manage the business and report to both the Board and the Executive Committee.
I would also like to thank all our Board members who have given their time and commitment to work on our Board and committees over the last year, and a special thanks to Robert (Bob) Johnston, Kazua (Kaz) Uchida and Hor Weng Yew, who are retiring from our Board this year, for their time, counsel and contribution through the years. Most important many thanks to the staff and management at Gard who with their energy and enthusiasm are ensuring that Gard continues to be the attractive club that it is.
Providing first class support when catastrophes strikes is essential for our Members and we continuously invest in people and processes to ensure the group can meet the needs of today and tomorrow. Gard’s deep roots in, and commitment to, mutuality drives its attitude and culture to the benefit of Members and clients. I am confident that we have the right talent and structure in place to meet future challenges.