CEO's operational review
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CEO's operational review


The financial year ending 20 February 2017 has delivered exceptional results for the Gard group – with a combined ratio net of 83 per cent and a total comprehensive income of USD 215 million on an Estimate Total Call (ETC) basis. Although the group’s income declined by nine per cent, primarily due to a continued softening market and lower demand in some segments, the results benefited from a fall both in the frequency and severity in claims activity.

The non-technical result was a profit of USD 104 million, a 4.7 per cent return on the portfolio. This constitutes a return which is commendable, although possibly hard to sustain in the medium term.

The strength of this year’s results has a great deal to do with our Members and clients working hard to deliver first class operations – the quality of which is a key driver in preventing accidents and handling critical issues efficiently.

The financial statements have been prepared in accordance with the amended regulations for annual accounts for insurance companies, approved by the Norwegian Ministry of Finance. The change in accounting principles took effect from the start of the current year and the accounts for the previous year have been restated. The opportunity to make provisions to a contingent liability (contingency reserve) has been removed and the contingency reserve is now presented as other equity as well as a deferred tax liability. Although no change to the tax treatment of provisions for risk equalization in Norway has been decided, the difference between the treatment of contingency reserve in the financial statements and in the tax accounts is deemed to be a temporary difference.

Knowing where you stand
Undoubtedly this is a very difficult trading period for those in the marine industries. It is unsurprising that shipowners and operators are looking carefully at their costs – managing their bottom line is vital. More business critical, however, is dealing with the consequences of a catastrophe – both in terms of cashflow and ongoing operations. At times such as these, a proper partnership is critical – working with an insurer who can deliver prompt payment and the capabilities to get the business back on track.

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. It delivers the stability and consistency that protects the assets, incomes, and reputations of our Members and clients. This is demonstrated by our policy of setting clear financial targets for how much capital we feel it is prudent to hold and, when we achieve these targets, returning excess funds to our Members.

We will do this again for the ninth successive year. Our equity now stands at USD 1,135 million – the strength of this capital position means we will waive the 25% deferred call, amounting to USD 90 million, in its entirety. In total, we have returned over USD 300 million to mutual members over the last decade.

We are confident in the strength of our capital position for the next several years. Standard and Poor’s concur with this assessment. In their last rating analysis in November 2016 they stated: “Gard has significantly grown its capital base in recent years, making it more stable and less vulnerable to one-off losses, in our view.”

On your side
Helping to see the whole risk picture underpins both our product portfolio and our approach to handling claims – we understand your perspective and see the world through your eyes. Buyers tend not to think about products, they think about their overall risk profile. Our objective is to ensure our products and services are client and broker driven, and that we provide the fullest possible service across the group. We achieved another good underwriting performance, with a combined ratio for P&I of 75 per cent and 103 per cent for Marine & Energy. Overall, our gross written premium reduced in the last 12 months, while number of vessels entered and gross tonnage covered have increased. Consequently, we are providing more insurance at a lower cost to our buyers.

For P&I, gross written premium for the year was USD 621 million and net claims to 20 February 2017 totalled USD 326 million. During the 2017 P&I renewal many businesses were taking tough decisions about how much money they had to spend and on what. We believe that there is a right price for each risk and are prepared to stand our ground on pricing decisions when we think that is the right thing to do for the long-term health of the Club.

While tonnage reduced slightly at 20 February, it was in line with our expectations. We gained new Members and our retention rate remained very robust. During the 2016 financial year, there was an increase in tonnage of 1.1m gt.

P&I has seen a lower loss experience with both fewer claims and fewer large claims. While there has been a decline in both the severity and frequency of collisions – which may be accounted for by slow steaming – the damages inflicted to quays and port installations does not reflect that. We are seeing a number of other claims’ trends including cases of seafarers seeking back pay and repatriation following the introduction of the Maritime Labour Convention in 2017 protecting seafarers’ rights in case of abandonment and unpaid wages. It is likely that these will increase in number as shipowners hit hard times. There are also signs that cost cutting is taking place in terms of reducing maintenance and employing less-experienced and cheaper crews – both of which can have expensive consequences.

For Marine & Energy, gross written premium for the year was USD 203 million, and in terms of numbers of vessels insured, this now totals nearly 9000 vessels and we have the claims lead on 47 per cent of these. Energy had a less successful year with this relatively small book of business suffering from a few large claims. This is a volatile class of business and we plan accordingly.

In Marine, the fact that we offer a combined P&I and marine claims service and a global network is one of the fundamentals underpinning our value proposition – one that sets us apart from other providers. When times are tough, having the expertise and capabilities to do the right thing – in the right way – makes for a business that is highly sustainable in the long term.

Both property and loss of hire claims are lower than the norm, possibly reflecting a less active trading environment and more vessels in lay-up, especially in the offshore sector, and we are seeing an increasing need for cashflow support to pay for repairs etc. Where we have the claims lead, we are able to act swiftly to give the right support.

Fit for the future
We continue to refine our strategy based on our three areas of strategic focus:

  • Financial strength as a competitive differentiator 
  • Long term moderate growth to utilise benefits of scale
  • A more efficient global organisation with focus on competence development and a strong service offering.

Our foundation and long term goals stay constant – our direction of travel is set. This does not mean however that nothing changes. We absolutely want to look at specific areas where we might need to accelerate or to change emphasis. For example, our core purpose is the management of risk, so we are increasing our focus on new product and business development.

Embracing disruption
Digitalisation will transform our industry. So, our strategy and structure must be nimble enough to help us respond to all of this. The reality is that innovation is not about technology, it is about helping us meet current and future client needs and build a more inclusive, sharing culture in the future.

We want to establish a culture where innovation is something we all do. One strand of our work will be looking into Proof of Concepts – which allow us to test new ideas in a controlled environment. These will be concepts that help us to deliver a better customer experience or improve our business model, and we want everyone in the organisation to feel they can contribute. Once we have established potential value, we will then find the resources we need to take that work forward.

One of our recent initiatives to focus more in this area is by working with Toppindustrisenteret (Digital Norway) – an organisation that brings together businesses and academia to share data, knowledge and experiences of digitalisation with the aim of encouraging innovation. This will be a key input for us in looking at new ways of working.

Closer co-operation
Historically we have tended to look at our organisation as defined functions and in the last year we have taken steps to understand the flow of products and services from the buyers’ perspective, with an increasing focus on co-operation between Underwriting and Claims, and also accounting/finance. We have established working groups to look at how we can align, coordinate and develop our operations.

Knowing our customers
As a group built on the foundation of mutuality, with FAIR as our core values, we are 100 per cent committed to running our business in a way that meets the highest standards of transparency and integrity. This is why in the last year we have focussed on knowing our customers better. Part of that is promoting a clear and proper practice for the way we conduct business, so from 20 February 2017, we have led the market by specifying the amount of commission to be paid to brokers or other intermediaries in our debit notes.

Access to knowledge and experience
Key capabilities that set us apart are the expertise and technical know-how that enable us to handle complexity and consequences of claims that create supply chain disruption. Gard makes a serious investment in our intellectual capital. The depth of knowledge across the organisation, combined with the breadth of our involvement in the industry, makes us uniquely placed to share knowledge and experience both before and after an event.

In the last year, there have been several examples that demonstrate this commitment. In September 2016, we announced the winners of the Claes Isacson Scholarship. This was the third year that the scholarship has been awarded. We had 53 applicants from 22 countries, all with first class academic records.

We are also the first insurer to become a Green Award Incentive Provider. Green Award certifies ships that are extra clean and safe and ships with this certificate reap various financial and non-financial benefits. Our contribution will focus on an annual seminar to address topics such as market challenges and trends, risk management and loss prevention, as well as innovation and new technology. We will also help to create a benchmark for the performance of Green Award vessels.

We were delighted when the work on the Hoegh Osaka casualty in January 2015 was recognised at a prestigious London Market insurance awards event. Gard won the Insurance Insider Cuthbert Heath Award (Claims and Losses) for working with the owner to rise to the extraordinary challenges of a major claim event.

Building robust relationships with government authorities and other casualty stakeholders in key jurisdictions around the world is a vital part of creating mutual understanding and communication to deliver a more effective and co-ordinated response should serious incidents occur. We fully support the work of the International Group of P&I Clubs in their efforts to sign large casualty Memorandums of Understanding in key jurisdictions. The UK Marine and Coastguard Agency is the latest organisation to sign-up to this collaborative framework following South Africa, Australia and New Zealand.

Being prepared
There is no doubt that 2016 was an exceptional year for the group – with all areas of the business delivering strongly. We remain, however, alive to the shifts that are taking place within the maritime industries; technological development, increased specialisation, changing business models and increasing internationalisation.

We understand the need to be nimble and to embrace change – while retaining our deep foundations of mutuality and service, and always basing our actions on the needs of our Members and clients. We want to be the preferred partner for insurance solutions and so will continue to focus on having the structures and skills to meet our buyers’ needs both today and tomorrow.