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Gard News 204, November 2011/January 2012

A challenging climate

Claes Isacson,
Chief Executive Officer

After a successful 2010 policy year, this financial year is proving to be more difficult. The first six months have presented various challenges, some of which are ‘business as usual' and others are more out of the ordinary.

The first quarter saw a number of large claims and, while the second three months passed without serious casualties, it is unsurprising that - overall - the claims performance is worse than planned. However, the random nature of claims is an integral part of our business, and we have the balance sheet strength and processes to manage them efficiently and effectively.

For the first half of the 2011 policy year, our combined net ratio was 102 per cent and we achieved better gross written premiums than expected across all areas except P&I mutual,  where, for the last two years, we have not asked for any general increase. Our surplus after tax for the period was USD 6 million, increasing our free reserves to USD 798 million, and our balance sheet now totals USD 2.7 billion.

Volatility in the investment markets has also affected us. Until the summer, investment returns had held up well due to the increasing prices of US government bonds. However, while we achieved solid investment results for the period, they are below budget and the ongoing economic and financial unrest means that we need to focus very carefully on the management of our insurance portfolios. 

Focusing on our Members' needs
The shape of risk is always changing - not just for us but also for our Members and clients. The shipping market is still overburdened with excess capacity - the tanker and dry bulk markets, in particular, face oversupply - all of which is weighing on freight rates. In addition, there are growing fears of a widespread double dip recession, which makes the outlook for the shipping market even less positive. In a difficult commercial environment, owners and operators are less than keen to increase their operating costs and will be looking for real collaboration around risk retention and transfer to achieve as competitive a deal as possible.

Our job is to create the right environment to offer the most intelligent risk solutions possible. We need to evaluate the structures and tools that we use - both the quantity and quality - so that we can offer genuine alternatives.  In addition, we are looking closely at our product portfolios, and increasingly creating tailor-made packages for our Members and clients. This focus on product development requires more resources, so we are strengthening our product development team.

We are also building our capabilities further around the group. For example, in Japan the market is undergoing considerable change and we are seeing buyers starting to require a greater range of products and services. Therefore, we are recruiting more local staff to ensure we are well-positioned to cater to this need. We are also looking to double the number of staff who work at Lingard in Bermuda as our reporting and regulatory activities become more focused on the island.

Finally, understanding the needs of our Members and clients better is also a driver behind our desire to increase the direct contact we have with our buyers, and with prospective Members and clients, either by investing in our global network, or by travelling to the developing markets more frequently. As always, we have an active autumn of travel and events - covering Germany, Norway, Hong Kong, Helsinki, Sweden, Singapore, Japan, Brazil and the UK - and I very much hope to see and hear from some of you as we move towards the end of the year.

Any comments on this article can be e-mailed to the Gard News Editorial Team.