Operational review
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Business review
Gard group result and reduction in last instalment
The financial year ending 20 February 2020 produced a total comprehensive profit on an Estimated Total Call (ETC) basis of USD 93 million.

Due to the high volatility and uncertainty in the global financial markets as a consequence of the Covid-19 pandemic, the Board of Directors resolved in their meeting in May 2020 to defer the decision regarding the last premium instalment for the 2019 policy year until the autumn 2020. Hence no last premium instalment is included in the financial statements.

The forecast last instalment for the 2019 policy year was 20 per cent of ETC, or USD 72 million. The total comprehensive profit excluding the last instalment was consequently USD 20 million.

The consolidated equity, which provides security and stability for the membership, was USD 1,179 million as at 20 February 2020 compared to USD 1,159 million the previous year. In spite of Covid-19, the financial position of the group at the time of reporting remains strong, with a low probability of levying any unbudgeted supplementary call.

Gard group on Estimated Total Call basis (ETC basis)
The financial year ending 20 February 2020 produced a total comprehensive profit, on an ETC basis, of USD 93 million. The non-technical result was a profit of USD 118 million.

Gross written premium on ETC basis was USD 874 million, an increase of USD 76 million or 9.5 per cent from last year and above the financial plan. This is a strong result in a soft P&I insurance market, helped by contributions from hardening hull markets and a growth in new business volume.

As a result of the 10 per cent increase in volumes achieved during the year, the Gard group has increased its overall market share.

The panel of reinsurers on the Gard group reinsurance programmes remain stable. There is an upward market pressure on the cost of reinsurance, however the impact to Gard has been modest as a result of strong, long-term relationships with reinsurers, an improved claims records and continuing changes to our risk profile.

The year demonstrated an acceptable technical performance, even after a claims intensive second half of the financial year. The combined ratio net on ETC basis was 102 cent and on plan.

Claims incurred for own account totalled USD 586 million, an increase of USD 49 million from last year. Last year was low due to the positive impact from an energy claim that developed favourably. There has been a higher level of Pool claims from the International Group clubs, which continued the trend from the financial year 2019. P&I mutual performed below expectation.

The technical result was a negative USD 10 million.

The non-technical result was a strong USD 118 million with gains across all major asset classes. Markets were not affected by the escalating Covid-19 crisis until after the end of the financial year.


With investment results being volatile, balanced underwriting becomes increasingly important. Being excellent at the fundamentals, properly assessing, selecting and pricing quality maritime risks, as well as providing strong claims and loss prevention services, are top priorities to deliver on our Members’ and clients’ needs. There is no doubt that the quality of our membership is a cornerstone for a sustainable future.

Protection & Indemnity on ETC basis
Gross written premium for P&I on ETC basis was USD 519 million, the same level as last year. The overall tonnage increase has been offset by a soft market and rate reductions. The rate reductions are driven by a benign claims development in previous years and a moderate growth in the world fleet. Both factors are intensifying competition, but we see the year as a turning point in this trend.

P&I claims incurred for own account totalled USD 405 million, an increase of USD 66 million from last year. The increase is due to a higher level of Pool claims from the International Group clubs, which continued the trend from 2018. Gard’s share of claims going into the pool in 2019 was less than our relative size. Our share in the pool will continue to be less than our relative size after the current year claims record.

The technical result for P&I was a loss of USD 27 million against a loss of USD 24 million last year. The combined ratio net for P&I was 106, the same as last year and close to plan.

The Covid-19 pandemic has caused disruption to the cruise trade and several outbreaks have significantly increased the severity of people claims in this segment after year end. For other types of ships, there have been an increase in crew and defense claims, but overall costs are expected to be countered by reduced claims frequency caused by general slowdown of shipping activity and increased number of laid-up ships.

Marine & Energy
For Marine & Energy, gross written premium was USD 354 million, an increase of USD 76 million or 27 per cent from last year. Both marine (hull) and energy saw hardening of rates towards the end of 2019. This is expected to continue as the rate levels in general needs to improve further as the current pricing levels are vulnerable to volatility of claims or an unforeseen adverse change in frequency.

The technical result for Marine & Energy was a profit of USD 17 million against a loss of USD 37 million last year. The combined ratio improved to 93 per cent from 118 per cent last year.

Claims incurred for own account totalled USD 181 million, a decrease of USD 18 million from last year. This was mainly driven by a lower number of large marine claims.

Even though these business areas have seen hardening of rates towards the end of 2019, the general rate levels in marine continue to cause concern and attention. However, during 2019 we have increased our market share in a volatile market, with new and existing clients showing a significant commitment to Gard. Our ability to lead claims effectively, our widely recognised security, and ability to get business back on track without unnecessary delays, are seen as an attractive value proposition in the current market environment. Effective claims handling means finding solutions in collaboration with the clients and their brokers so that costs are reduced for the benefit of both parties, and adverse consequences of marine incidents are mitigated for society at large.

The energy market has seen a slight increase of rates, although premiums are still considered too low in a market segment prone to large claims. No large claims hit the energy business area and the area gave a good contribution to the overall result.

Over the twelve months to 20 February 2020, the Gard group achieved an investment return of 5.8 per cent against a benchmark of 6.1 per cent. In the previous year, the investment return was 0.0 per cent. The group’s investment portfolio increased from USD 2,103 million as at 20 February 2019 to USD 2,113 million as at 20 February 2020.

The year to 20 February 2020 was a remarkably strong year for financial assets and a welcome recovery from the negative investment result in the previous year. The adverse effects from the COVID-19 pandemic to the financial markets started after financial year-end.

For much of the year, the main focus for investors was the on-going trade dispute between China and the US, with markets reacting to every tweet from President Trump and the inevitable response from President Xie. The on-going uncertainty over global trade left its mark across the major exporters in the world, with both Germany and Japan teetering on the brink of recession and US manufacturing slowing markedly - the ISM Manufacturing PMI fell to its lowest level since 2009. Despite the tensions over trade, equity markets were strong for much of the year. Whilst continued tight US labour markets added momentum in equities, despite a drop in corporate profits, the main driver for risky assets was interest rates. Throughout the early part of the period, markets were anticipating easier monetary policies in response to the trade dispute, and the US Federal Reserve finally cut rates in July as a “mid-cycle adjustment”. The US 10-year government bond yield fell throughout the period from 2.6 per cent to 1.5 per cent in February 2020. The general rally in fixed income assets also drove tighter credit spreads, with the spread on BBB corporate bonds over US 10-year treasuries falling from 1.65 per cent to 1.27 per cent, the lowest level since 2006.

Energy prices rallied over the year, with the WTI oil price increasing by 34 per cent, and through the latter half of the period, equity markets and risky assets continued their march upwards. Any negative economic news was reacted to with further anticipation of future monetary easing and more market strength.

On the currency side, the USD rose slightly over the year versus most other currencies. Sterling rallied sharply towards the end of the period as the UK elections gave Boris Johnson the majority he and the Tories needed to enact Brexit and start the process for the UK to finally leave the EU after the referendum in 2016.

Equity investments returned a positive 10.2 per cent, real estate investments a positive 6.2 per cent and fixed-income investments a positive 5.3 per cent over the period. All returns in USD terms.

Gard is and aims to remain a responsible investor. We fully support the UN Principles of Responsible Investment and encourage fund managers to sign up to them. These principles recognise that long-term sustainable returns are dependent on stable, well-functioning and well-governed social, environmental and economic systems.

Capital and Risk Management
Over the twelve months to 20 February 2020, the Gard group continued to be strongly capitalised.

Risk management
Gard has an effective system of risk governance, which provides sound and prudent risk management. Risk governance is based on the three lines of defence model, with clearly defined roles and responsibilities. Risk taking is carried out in the business functions (1st line), risk oversight is carried out by the Risk Management function, Compliance function and the Actuarial function (2nd line). Independent assurance is provided by Internal Audit (3rd line).

Gard’s Risk Management function is mandated to ensure that the group has the necessary expertise, frameworks and infrastructure to support good risk-taking. In addition, it performs reporting activities. The independence of the Risk Management function is maintained by a direct reporting line from the Chief Risk Officer to the Chief Executive Officer, and regular reporting to the Risk Committee.

Gard’s internal risk capital model provides a quantification of the risks to which Gard group and its legal entities are exposed and is an important tool for Gard. The model is used to determine the risk and capital requirements for internal purposes. The internal model and its parameters are reviewed regularly to reflect Gard’s experiences, changes in the risk environment and best practice. The insurance risk and market risk modules from the internal risk capital model have been approved by the Norwegian FSA to be used for calculating Solvency II capital requirements for Gard group, Assuranceforeningen Gard – gjensidig - and Gard Marine & Energy Insurance (Europe) AS under Solvency II. The Standard Formula is used for counterparty risk and operational risk.

Risk appetite and strategy
Gard’s risk appetite is to hold sufficient capital and liquidity as well as to constrain its risk taking to ensure that the group can continue to operate following an extreme loss event with the same risk tolerance for insurance risk. The risk-taking must be aligned to Gard’s risk-carrying capacity.

Gard aims to fulfil the following key objectives:

  • Have a high probability of meeting its insurance liabilities and providing its services;
  • Preserve the continuity of its offering after an extreme loss event; and
  • Have the flexibility and competence to help Members and clients manage new risks and pursue attractive business opportunities as and when they arise.

The probability that Gard would have to raise additional capital from its mutual Members by way of unbudgeted supplementary calls should be low.

Eligible own funds  20 February 2020  20 February 2019
Tier 1 Basic own funds 1,089 1,106
Tier 2 Ancillary own funds 255 245
Tier 3 Other own funds - -
Eligible own funds 1,344 1,351

Capital management
Gard has a simple capital structure consisting of Tier 1 capital through equity, which is earned and available, high quality Tier 2 capital in the form of unbudgeted supplementary calls, and tax assets included as Tier 3 capital.

The Gard group aims to manage its capital such that all its regulated entities meet local regulatory capital requirements at all times.

Risk profile
In context of its business operations Gard enters into a broad variety of risks, where the main risks are insurance risk and market risk. Gard is also exposed to counterparty default risk, operational risk, liquidity risk, business risk, compliance risk and reputational risk.

Gard has an extensive reinsurance program. The mutual business is pooled between International Group (IG) clubs. For the 2019 policy year the IG clubs pool claims above the club retention of USD 10 million and up to USD 100 million. Above USD 100 million, the group purchases a reinsurance program with USD 2 billion cover per vessel per event with an annual aggregate deductible of USD 100 million and an overspill protection cover of a further USD 1 billion. For P&I Fixed and the Marine and Energy businesses there are high capacity reinsurance programs in place. The structure of the reinsurance programs has been stable during the last years.

Liquidity risk is the risk that Gard group, a legal entity and/or branch either does not have available sufficient financial resources to meet its obligations as they fall due or can secure such resources only at an excessive cost. The sources of inflows are stable in Gard, where liquidity is generated primarily through premium income. Although payments are fairly stable over time, the nature of the insurance business means that Gard must be prepared to make sudden and large payments.

The amount of liquidity held is largely determined by internal liquidity stress tests. Based on these stress tests, we estimate short-term and long-term liquidity needs. To mitigate liquidity risk, Gard has established several mechanisms including cash pool arrangements within the group and holding highly liquid assets.

S&P rating
In December 2019 Standard & Poor’s affirmed the A+ financial strength of the Gard group and its direct writing subsidiaries (Gard P. & I. (Bermuda) Ltd., Assuranceforeningen Gard – gjensidig -, Gard Marine & Energy Limited and Gard Marine & Energy Insurance (Europe) AS). The rating reflects Gard’s strong capital adequacy, strong operating performance and business profile as a leading insurer. The outlook is stable.