Chairman's report
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Chairman's report

This being my last Directors’ Report as Chairman of Gard, it seems appropriate to reflect briefly on some of the changes and constants that have affected the industries in which Gard operates. 

I have had the privilege to serve the Gard group for almost 19 years of great internal and external change which has shaped the organisation that Gard has become.

At the end of the last century Gard was a traditional mutual club focusing on P&I and governed ultimately by a Committee which reflected the industry at the time. At my first meeting the Board and management was given a mandate to negotiate with If to manage the Vesta and Storebrand Marine & Energy business. It was a significant decision which has led to what Gard is today.

The group has adapted to serve the changing needs of its Members and customers, expanding its global footprint to provide local service, evolving to provide a comprehensive range of products and building a structure based on good governance, deep expertise and knowledge. It is particularly gratifying that, while growing its size and range of business, it has maintained its South Norway core culture. The Gard model has remained constant – the strategy of being well-capitalised; focusing on efficiency and quality while taking on risk from Members is one that has positioned the group strongly.

2017 was another year in which Gard delivered against this commitment and produced strong results, with a profit after tax of USD 115 million, and again the cancellation of the entire deferred call of USD 79 million. A benign claims environment has undoubtedly helped, but the quality of our Members and customers has certainly been crucial. Demanding Members force an improved standard of operations. I think we are in a virtuous circle with our existing quality membership attracting other quality owners to join the Club.

Changes, opportunities and challenges
Maritime industries are developing swiftly; whether that is fish farming in locations in deeper waters, offshore wind farms or sailing through the North Passage – this wider use of the oceans brings with it new opportunities and challenges. We are also engaging in the insurance of autonomous vessels.

Autonomous vessels – as with cars, will bring about enormous change from the construction of vessels to crewing and operations, and may alter the way shipping companies and insurers think about risk management. It is also likely to affect liability issues. Over three quarters of maritime accidents and casualties are affected by some type of human error such as fatigue, inadequate communication, lack of knowledge of the ship’s system and decisions based on incomplete information. It is not surprising that the desire to improve safety and reduce risks to seafarers is a driving factor in the development of autonomous vessels.

There are also broader political challenges facing both shipping and insurance today. It is now under a year until the United Kingdom leaves the European Union and there are more questions than answers about the future shape of trading relations. The political rhetoric from the US is still focused on “America First” with the clear implications of protectionism. But these are not isolated incidents. According to research by law firm Gowling WLG, the world’s top 60 economies have adopted more than 7,000 protectionist trade measures in the last ten years, aimed at shoring up key industries, protecting jobs and maintaining a strategic international advantage.

The use of economic sanctions has serious implications for everyone involved in maritime trade. The US position on Iran and the nuclear agreement creates diplomatic and trading uncertainty and reminding us of the law of unintended consequences. Sanctions place a heavy compliance burden on marine insurers, but of more concern for owners is that the payment of claims incurred in Iranian ports or territorial waters, for entirely lawful voyages, cannot be paid because the international banking sector cannot, or are unwilling, to deal with Iran. So, vessels may be detained longer at great expense for owners.

Until quite recently, cyber-attacks were mainly motivated by attempts to obtain personal or financially sensitive data. Today it is clear that no industry, including the maritime sector. can be complacent. The Maersk cyber security attack in 2017 is a vivid illustration of the severe disruption and high cost suffered as a result.

The challenges outlined above are just a few illustrations of the evolution of the maritime sector and the risks it faces. Despite all of this, society at large, rightly, expects the maritime industry to continue to take very seriously its responsibilities in terms of how it looks after the environment – both in day to day operations and after a casualty, as well as the care it offers its employees on and offshore.

Some personal reflections

Stepping down from the Board I have the freedom to make some personal observations on the marine insurance industry. I think the clubs and the International Group of P&I Clubs (IG) must do a much better job in promoting the advantages of the convention based liability regimes backed by insurance – securing the efficient and prompt settlement of claims for the benefit of victims of maritime casualties. The alternative may be long and costly litigation to settle claims

The International Group (IG) is a unique industry body covering about 90 per cent of the world fleet. The IG is a cost-effective vehicle for the mutuals in pooling large claims and the collective purchase of reinsurance. Gard is a strong supporter of the IG including also its role as a forum for knowledge sharing and as an industry voice. Whilst the IG provide a very valuable role with tangible benefits to shipowners and victims of marine casualties I think some reforms is needed. I think it needs to be more progressive in adapting to changing needs of the shipowners including a continuous review of the scope of the mutual cover. In my view governance processes needs to be looked at including voting rights. It is important that the work on strategic issues within the IG is given greater attention and addressed with speed and that there is a willingness to be open for change. I also hope that we will see consolidation among the smaller clubs which would facilitate a larger capacity to take bigger retentions.

Finally, I suspect we will see big changes in distribution as a result of greater digitalization including the use of blockchain and other technologies.

Looking to tomorrow
The progress that Gard has made since deciding to write international business back in the 1960’s has been amazing. It has been fortunate in having both a loyal membership, dynamic management and wise leadership along with highly qualified and motivated people. It is quite incredible how a global marine insurance business, second to none, has been built in Arendal on the south coast of Norway.

Gard has a good mix of experience, new thinking, practical skills and those looking to the future. Whether it is improving on what is being done today or thinking about what needs to be done tomorrow, Gard has retained its mutual mindset and values, helping it to fulfil its core purpose of helping Members and customers to mitigate casualties and manage their risks. Mutuality undoubtedly remains the heartbeat of the group and one of the foundations of its success.

I have been very fortunate to have been part of Gard’s governance for many years. It has been both stimulating and an education. Shipping and marine insurance is a cosmopolitan business which is very attractive and I have made many friends.

I wish to thank all board members for your engagement to look after Gard’s best interests. A special thanks also to those who have devoted additional time to serve on the various committees. Finally, many thanks to the management and staff for your commitment and devotion in developing and making Gard the successful group it is today.

Best wishes,

Bengt Hermelin