Special Circular

February 2005


Dear Sirs,

Gard takes sole control of marine and energy business

Following meetings of the Executive Committee of Assuranceforeningen Gard (Gard), and the Boards of Gard Marine & Energy Limited (Gard M&E) and Gard P&I (Bermuda) Limited today, it has been announced that the Club has purchased If P&C Insurance Ltd’s (“If”) 42.1% minority shareholding in Gard M&E, to take sole control of the business.

The transaction will be reflected in the combined consolidated accounts of Assuranceforeningen Gard and Gard P&I (Bermuda) Limited as at 20th February 2005, which will be published together with the management report as usual.

Gard acquired its initial 57.9% holding in Gard M&E in January 2004, and it was then agreed that If’s ownership interest would be phased out, giving the Association complete ownership in due course.

Gard decided to exercise its option to purchase the shares at the first available date for a number of reasons:

  • To take advantage of a rebate on the price of the shares if the option was exercised early.
  • To build on synergies gained so far, and create even greater operational and financial efficiencies.
  • To benefit from the co-ordinated purchase of reinsurances for both Gard M&E and the P&I Club, other than International Group reinsurance.

Details of the deal

  • The cost of acquiring the portfolio was USD 30 million paid to If as a goodwill payment in January 2004.
  • The book value of If’s paid-up ordinary share capital is USD 83.9 million, however a rebate of USD 7.5 million was secured through early exercise of the purchase option.
  • Gard P&I (Bermuda) Limited will be the purchaser of the shares.
  • These shares remain an asset in the Association’s accounts and therefore do not affect the level of the Club’s free reserves.
  • This purchase makes Gard M&E a wholly owned subsidiary of the Club.
  • Standard & Poor’s has announced today that it has rated the Association A (stable), and Gard M&E A- (stable).
Following the deal, the Gard Group has an annual gross premium of USD 500 million, and it has a total balance sheet of some USD 1.3 billion. As at 20 November 2004, the Club’s free reserves had increased by more than USD 50 million from the USD 328 million reported as at 20 February 2004.

The first year of Gard M&E has seen significant business synergies, and Gard M&E is expected to provide a good investment return for the Club. The results to the 20 November suggest that the Club’s initial investment will make a return in excess of 10%. The average net combined ratio for the marine and energy portfolio now owned by Gard M&E has provided a significantly better return on equity than the market as a whole over the last nine years.

This suggests that the marine and energy business can outperform the market going forward. To run a profitable marine and energy operation we believe that we have to:
  • select, attract and retain better than average shipowners
  • maintain strict underwriting disciplines
  • have the lowest possible cost base
  • control the claims process (Norwegian claims model)
  • influence claims levels through loss prevention
We believe that these are compelling reasons for the Club to take total control of the marine and energy business, and continue our strategy of providing a first class service to Members.

Yours faithfully,

Claes Isacson
Chief Executive Officer

For further information please contact
Claes Isacson – 00 47 37 01 91 00
Sven-Henrik Svensen – 00 47 37 01 91 15
Kjetil Eivindstad – 00 47 37 01 92 18