It is likely that history will look back on 2016 as an extraordinary year. On the political world stage, the unexpected happened and economically the maritime industries had a record-breaking year – but not in the desired way. Against this background, I am pleased to report that Gard has produced strong results for the year with a USD 215 million total comprehensive income. This allows the association to waive the Deferred Call, reducing the premium cost for mutual members with USD 90 million.
This result has come from a combination of an efficient organisation to provide the required marine insurance products cost effectively and the maintenance of a clear focus on quality of service. The result is also a reflection of the high operational standards and quality of the Gard membership and the related low claims. For the first time in the recent history, the Club’s strong capital position allows us to reduce the cost of insurance to our mutual Members by waiving the deferred call in its entirety – this equates to a 25 per cent rebate on the expected costs, all to the benefit of our Members.
A record breaking year
A review of the key events for the maritime and offshore industries in 2016 makes for rather gloomier reading than the Gard results. The Baltic Dry Index fell to an all-time low of 291, the container market had its first major corporate casualty for 30 years in Hanjin, shipyards recorded a historically low level of newbuilds with fewer than 500 orders reported in 2016 and the price of oil briefly dipped below USD 30 a barrel. Fortunately, we are now seeing some signs of improvements in the shipping markets.
While the World Bank predicts a moderate economic recovery for 2017, they also say that weak investments are weighing on the medium-term prospects of many emerging markets and developing economies. With a new US administration with strong views on trade but, as yet, no explicit actions, and the UK embarking on an untrodden path to exit an existing trading bloc, there is heightened policy uncertainty in major economies.
The anti-trade rhetoric is also being accompanied by a growing number of countries introducing protectionist measures. According to the World Trade Organization, between May and October 2016, G20 economies introduced new protectionist trade measures faster than at any time since the financial crisis in 2008. Some economists believe that this creeping protectionism has reached a point where it is contributing to the ongoing slowdown in global trade. It is definitely something that we are also noticing as a global insurance provider – with access to certain markets becoming more challenging.
At times such as these, predicting the future is only for the brave. The role of Gard is to help keep world trade moving – through lulls in activity as well as during busier periods. Everyone in the organisation, from the Board downwards, is alive to the challenges faced by Members and customers in the current cycle and is looking at what support the group can provide – be that in providing cost effective marine insurance solutions or being able to help cashflow in the event of a casualty.
The right scale to respond
Short term developments in the external environment need monitoring and consideration, but Gard takes a long-term view on the business of assuming and managing risk. Our strategy focusses on three key strands of activity; maintaining financial strength, developing our market position and building an efficient global organisation. The CEO’s Operational Review outlines Gard’s achievements for each of these in the last 12 months.
The insurance industry faces its own challenges and over the last several years has experienced significant change. Market conditions for casualty insurers have deteriorated significantly during the last 12 months and pricing remains under severe pressure. The investment environment is volatile and we must be prepared for periods of negative returns. Some believe that the answer to cope better with these challenges is consolidation.
Despite a few attempts, the P&I market has remained immune to M&A activity, so far. However, the property & casualty market has not and competitors in the marine and energy sectors have been part of this trend. Gard’s position is that we have the necessary scale to provide the marine insurance products the market requires cost effectively in locations where customers are active and trade is taking place, as well as having the stability and capabilities that Members and customers rely upon. It enables us to offer a stable rate environment, provide industry leadership and attract the expertise and talent that we need to handle the largest and most challenging claims.
Responding to external change
Both government and society increasingly demand that businesses provide greater levels of transparency and a proper knowledge of its customers. As part of this, we wish to ensure that remuneration payments to brokers, and other intermediaries, are wholly transparent and meet best practice standards. We require full clarity among everyone involved. New processes were introduced well in advance of the 2017 renewal, and this policy of knowing our customers better will be something on which we will continue to focus in the coming months.
A year ago, the lack of firm assurance on whether or not the IOPC would step up and meet its share of any liabilities arising from casualties under internationally agreed liability regimes was a matter of grave concern for the clubs. This system – which had worked very well for many years was at risk because of the decision by the IOPC 1971 Fund to wind itself up – despite there being outstanding claims against it. We were very pleased that at the end of 2016, eight years of negotiations between the International Group of P&I Clubs and the IOPC Fund were successfully brought to a close with an agreement on the funding of interim payments. This set out the basis on which individual Group Clubs and the 1992 IOPC Fund will agree to treat interim payments made by the two paying parties in the event of future 1992 CLC/1992 IOPC Fund incidents.
Pulling in the same direction
In what are challenging times for many, being able to report on the continued success and positive developments at Gard, both financially and operationally is good news for everyone involved with the group. Even more encouragingly, there is no sense that the organisation is resting on its achievements but rather continuing to progress through solid team work, a strong business performance, productive financial and human capital and above all, a robust knowledge base and a willingness to adapt to change.
Still we must always be on guard against complacency. We have survived and prospered in a world of turbulence and volatility, and it is important that we preserve and improve upon the characteristics that have made Gard what it is today – and what sets us apart. I would like to thank the management and staff for their dedication and commitment in managing Gard. I would also like to thank the Boards and Committees for their important contributions during the year. A special thanks also to Tadeusz Niszczota, who is leaving our board this summer, for his active contribution to the Board, Committees and subsidiaries for many years. I very much look forward to continuing my work with all of you in the coming year.