CEO's operational review
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CEO's operational review

I am pleased to report that, for the financial year ending 20 February 2016, Gard reported a strong operational performance, resulting in a profit after tax of USD 85 million on an Estimate Total Call (ETC) basis. With a Combined Ratio Net (CRN) of 83 per cent, this result is a combination of good risk selection, a better than expected claims environment and a favourable development on prior years.


The investment performance was weaker in 2015 than we have experienced over the past several years which resulted in a non-technical loss of USD 53 million, reflecting the fall in global financial markets.

Taking the long term view

The mutual model provides a strong platform for a long-term business albeit with potentially high earnings volatility. Taking a long term view is therefore a fundamental part of how we do business. Whether it is risk assessment, relationship building or developing our people, we look beyond the here and now and invest for the future. Long-term relationships are built on trust so, both as individuals and as an organisation, we bring integrity to everything we do. This is a strategy that has served our Members and clients well for over a century.

We believe that our strategy of focussing on three key activities; maintaining our financial strength, developing our market position and building an efficient global organisation, is fundamental to delivering the stability and consistency that protects the assets, incomes, and reputations of our Members and clients.

First class financial strength

Free reserves now stand at USD 1,017 million. In what is undoubtedly a very difficult trading period for those in the maritime industries, it is unsurprising that shipowners and operators are looking carefully at their costs – and that there is considerable industry debate around the levels of premium required and the reserves held by clubs.

In this, as in everything we do, taking the long term perspective is critical. Mutual P&I is about sharing risk and reward. The model is simple and is built to weather the unpredictable, and the role of healthy free reserves is to absorb periodic shocks to the system. The size of those reserves depends on the risk appetite of the Members and the risk profile of the club.

When a club holds capital above what is required by its risk appetite and its capital management framework, that excess capital should be returned to its mutual Members. At Gard, our Board sets clear financial targets as to how much capital we want to hold, and that strategy is debated, discussed and ultimately signed off by the Directors who represent our shipowners.

Having achieved these targets, we will again return money to our Members when the capital position of the group allows. Based on this strategy, Gard has reduced its deferred call in eight out of the last 10 years. The last seven years Gard has returned USD 223 million to our mutual Members through reductions in the deferred call. This year’s accounts reflect a 10 percentage point reduction (USD 37 million) in the deferred call agreed by the Board of Directors. This represents an eight per cent reduction of paid premium compared to the agreed renewal terms.

Getting the basics right

Our philosophy is grounded in doing the basic things well – being able to assess and price risk, doing it in a way that is fair and delivering a strong claims service, all of which are key ingredients in the mix. We achieved another strong underwriting performance, with a CRN for P&I of 79 per cent and 89 per cent for Marine & Energy. This is the result of selecting and pricing risk correctly and a good year from a claims perspective. Despite soft market conditions making pricing highly competitive, fewer large casualties and a reduction in the frequency of claims made for a very positive result.

Despite the overall reduction in net claims, the Club was exposed to some significant claims on a gross basis in the last year. The unpredictability and potential severity of claims illustrates the need for financial strength, a first class casualty response and strong subsequent claims handling services.

Collisions and other forms of contact damage accounted for over a third of large claims last year. Human error continues to be an issue, in spite of the availability of more sophisticated technical equipment to help navigation and ship operations. Some cases suggest that ships may have outgrown ports, berths or terminals – lowering the margin of error.

On a more positive note, we have seen fewer serious pollution cases – particularly among tankers, which suggests that the industry has benefitted from higher operational requirements and improved prevention. Claims for wreck removal continue to grow in both cost and complexity as many countries are increasingly sensitive to the issue of any debris being left on the seabed.

Preventing large claims and the efficient handling of major maritime casualties are, if we succeed, a marine insurer’s largest single contribution to reducing the costs for our Members. Gard is actively seeking to work with authorities and maritime organisations to improve efficiency in the handling of large maritime casualties. Our experience clearly shows that the final consequences of a casualty, both in respect of financial burden for the shipowners, as well as damage to the environment, third parties and the society at large, is heavily dependent on taking effective and timely decisions when an accident occurs.

In many cases, the best decisions can only be made with close cooperation between authorities, shipowners and insurers.

Consequently, Gard will intensify our dialogue with authorities and maritime organisations, and support initiatives within the International Group, to be even better prepared when our Members are struck by calamity.

Developing our market position

It is our goal to continue to grow our market share in existing and new markets relative to our competitors, and to strengthen our long term market share in all main product lines. This is not growth for the sake of size alone. We believe that achieving the right scale will enable us to deliver a combination of products and service that meet the current and future needs of Members and clients. It also enables us to respond to a changing business environment and attract the expertise and talents that we need.

In a market where competition and excess capital are keeping prices low, gross premium written fell this year. The overall growth in the marine insurance sector is expected to be low also over the next coming years, so achieving our growth targets will be a vote of confidence from our Members and clients in our value proposition.


For P&I, gross written premium for the year was USD 644 million and net claims to 20 February 2015 totalled USD 352 million. The 2016 P&I renewal took place against a background of challenging macro-economic conditions for our Members, as well as a highly competitive insurance market. Nevertheless, this renewal was a positive one for Gard – new gross premium written was higher than previous years, sustainable premium levels were achieved and there was a good tonnage growth.

In the mutual market, Gard saw an increase of around 2.8 million GT at the renewal, bringing the total tonnage increase in the last 12 months to 10.7 million GT. This growth has come both from a number of high quality owners moving vessels to Gard for the first time, as well as existing Members moving over more of their fleet. The development was well spread geographically, reflecting our global presence and the close collaboration between Gard teams in offices around the world. We were particularly pleased that the investment we have made in Asia was reflected in an increase in business written in our Hong Kong and Singapore branches. The development in North America was also very positive across a range of different segments.

We are pleased that, while the general increase was offset by lower reinsurance costs, we achieved the modest increase on retained premium essential to deal with the effects of claims inflation. Adjustments were distributed equitably depending on claims performance and individual risk profiles.

Marine & Energy

For Marine & Energy, gross written premium for the year was USD 267 million, and in terms of numbers of vessels insured, this now totals 8,768 and we have the claims lead on 47 per cent of these – which represents a welcome increase. In a highly competitive market, our reputation as a quality claims lead has proved to be a strong differentiator – as is our ability to offer a combined P&I and marine claims service and a global network should the need arise. The economic value of this is proven and is an important factor in our positive insurance results over the last few years.

A continuing soft market and the reduced value of insured assets have led to an overall reduction in premium in this business area, and market conditions are leading to marginal profitability. However, the picture is helped by offsetting reductions in values at risk and a benign claims environment. We take a long term view of our commitment to the market and will work with our clients on a competitive offering. 

The challenges for the offshore oil industry are well documented and, over the last year, this has fed through to reduced exploration activities, the postponement of development projects and the mothballing of assets. This, combined with excess capacity in the insurance market, is leading to a market where pricing is marginal in the medium-term, especially when there have been some major claims.

An efficient global organisation

Two years ago, we set ourselves goals for 2020 and already the world is a very different place. The environment in which we are operating is increasingly complex; the shipping industry is more specialised, technological development is influencing our future markets and new financial and ownership structures are influencing insurance needs. At the same time, digitalisation offers both opportunities and challenges.

Equally important is the fact that our core markets will not grow significantly over the medium term. This will put more pressure on us to develop a more effective global organisation and make more efficient use of our resources.

Right people and structures

This means that we need the right structures and people across all levels of our business. Late in 2015, we appointed our first Chief Digital Officer, Ole Rikard Rønning, to sit on the Group Leadership Team (GLT). His role will be both to build on our existing resources and look for business transformation opportunities to take our operations to the next level.

Svein Andersen stepped down as Head of Claims on 20 February 2016, but I am delighted to say that he will be a Special Advisor on the GLT until he retires in October 2016. He conceived and delivered a tremendous team effort to build our first class claims service, and it is a result of his leadership and hard work that we have the processes, systems and expertise to handle casualties that range from the most complex to the everyday with utmost efficiency.

As part of our focus on creating a well-planned succession process for key roles, we were able to fill this strategically important role from within Gard. Christen Guddal became Chief Claims Officer at the end of the 2015 financial year. The combination of his 15 years in claims (including three years as its head) and his management experience, means that Christen will be perfectly positioned to lead the claims organisation forward as the maritime industry becomes increasingly complex.

In the summer of 2015, we reviewed our underwriting organisation to ensure that we have the right structure in place to operate in what is a highly competitive underwriting environment. The result was the creation of three new roles; Chief Underwriting Officers (CUOs) for the Shipowners and Industry segments (Specialty) and for Asia, all reporting to the Group Chief Underwriting Officer. This gives Gard the resources to look at the developments and trends across all areas and empower the teams with strategic guidance, as well as having the underwriting teams focussing closely on the particular needs of Members and clients.

Sharing knowledge and expertise

One of our pillars of excellence is sharing knowledge and expertise to help our Members and clients to better understand various elements of marine risk. Container risks have become even more significant over the past two decades, with the growth in the size of containerships and the corresponding changes required in container terminal operations and in other parts of the logistics chain. In response to this, in early 2016, we launched the latest in our series of Gard Guidance books - Guidance on Freight Containers, written by industry expert Jerone de Haas, Managing Director of BMT Surveys (Rotterdam) and providing a comprehensive overview of containers, their safe transportation and the wider terminal logistics.

A growing number of anchor losses reported in recent years prompted the launch of a project in conjunction with DNV and the Swedish Club to address this issue. Based on an analysis of cases involving the loss of anchors and their chains, the project partners have issued a video and a presentation identifying the most frequent technical and operational causes, and steps crews and operators can take to address them.

We also continued our broader Loss Prevention activities, issuing 69 Updates covering important aspects of safety and risk mitigation across the globe – this represent a 40 per cent increase on previous years. As well as attending more than 45 training sessions in 2015, Gard hosted a two day seminar in Szczecin, Poland for senior ship officers located in Poland and Germany. 120 officers from 12 Members and clients attended.

Local knowledge and cultural awareness is key to tackling local challenges – which is why we appointed a Loss Prevention Executive to our Asian business in 2015. We have also continued our outreach programme to connect to government authorities and other casualty stakeholders in key jurisdictions around the world. By building relationships based on mutual understanding and communication, we are able to prepare for a more effective and co-ordinated response should serious incidents occur.

Looking forward

There is no doubt that we are operating in a ‘new normal’ – consolidation is happening in our own industry, technology is changing our lives and the way we work faster than ever before and economic uncertainty remains a constant. Our solid team ethic has delivered a strong business performance and I am confident that this will give us robust foundations for the future.

Rolf Thore Roppestad
Chief Executive Officer