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Gard News 189, February/April 2008


In the last of the series of articles based on highlights from Gard’s centenary book, we look at Gard’s history from 1970 to 2007.

Spreading the Norwegian roots
In 1971 Gard accounted for around 40 per cent of the Norwegian market and to continue its growth it needed to look to new markets. As the 1970s got under way, managing director Nicolai Herlofson set out to target potential members abroad; initially he sought out Greek shipowners, before going on to new hunting grounds in Japan, Hong Kong and South America. Within a few short years he managed to attract a number of new members, leading to a larger and more international Association.

This was extremely far-sighted since, by April 1976, 32 per cent of the Norwegian fleet was idle, as the world shipping crisis made its presence felt. It was a drive for international business that saved the day as the decline in Norwegian tonnage to 1.9 million GT in 1978 was more than balanced by new international members.

With a growing foreign membership, Gard became more international in its communications. In 1973 Herlofson stopped the presses on the in-house information leaflet Medlemsblad and in 1976 re-launched it in English as Gard News. It was also essential that foreign members became more involved at a leadership level. The statutes were amended in February 1978 to create what became known as the Committee, and in June 1978 the Committee met for the first time, in English. Elected at the annual general meeting, the Committee was given the highest authority, sitting directly above the board, which was slimmed to six members and re-named the Executive Committee.

Spanning the globe
In 1982, Gard became a member of the International Group of P&I Clubs. Taking its place alongside 12 clubs that covered some 90 per cent of the world fleet, Gard was fifth in terms of tonnage. This more global outlook required a stronger regional presence around the world. At the end of 1982 Gard (UK) Ltd was set up in London, primarily for underwriting, and during the summer of 1986 Gard took over O. Kverndal & Co and integrated it into its UK operations.

Following the grant of a licence in Japan, Gard P&I Japan and Far East was opened in Tokyo 1991. In 1996 Gard established its Gothenburg office to service customers in Sweden and in 1997 Gard set up an office in Hong Kong, establishing a base to handle P&I claims for members in Asia. A branch office in Helsinki was established in 2003 through the purchase of Baltic Protection, to be responsible for underwriting and claims handling services in Finland and the Baltic states. 2006 saw Gard purchase Trimar Defense Services in New York, which had handled Gard P&I claims in North America for several decades.

Moving offshore
With the discovery of oil on the Norwegian shelf in 1969, many shipowners had begun to see interesting opportunities in the offshore market. As Gard’s members began to focus in this area, it was only natural that the issue of P&I cover for offshore vessels was brought up. At Gard underwriters began to tailor P&I policies for drilling vessels, and the next step was to create the P&I Offshore Pool with Skuld on a 50/50 basis. By 1978 28 drilling vessels were members of the pool.

Gard’s focus on the offshore market continued unabated. P&I cover for mobile offshore units (MOUs) and other liability covers for members in this market had been an area of growth and emphasis for the organisation for a number of years. In 2005 Skuld withdrew their P&I cover for MOUs, a business it had underwritten jointly with Gard for 32 years and which had become a market leader. It was a natural development for Gard to offer continuity of cover and service by renewing cover for all Skuld’s MOU members, as if the entries had been continuously with Gard.

Covering more ground
In the early 1980s, the over-capacity of the global fleet was beginning to hit Gard, and the club experienced stagnation in owner-entered tonnage. In contrast, however, the amount of time chartered (T/C) vessels trebled to 7.5 million GT by 1986. The volume of T/C tonnage continued to rise steeply and this drove Gard’s growth during this period. By 1995 it accounted for 26 million GT, or a third of the entered total. This success in attracting T/C tonnage was largely down to the development of tailor-made products.

Gard has always responded to clients' changing needs through innovative product development, starting in 1977 with the introduction of the Defence Cover as a supplement to P&I. As well as covers tailor-made to suit the requirements of individual operators, Gard is well known for its many additional covers. The Comprehensive Charterers' Cover and the Comprehensive Carriers' Cover have been continually updated and refined, and the trend for product innovation has continued to the present day with the introduction of P&I cover for supply vessels, specialist craft and divers, as well as a combined P&I and hull and machinery cover for small craft.

Sea change
Herlofson became ill and in June 1992 informed the Executive Committee of his plans to step down. He was instructed to come up with candidates to succeed him and his choice was John G. Bernander, who joined Gard as deputy managing director in October 1993.

When Bernander took over as managing director in 1995, a careful examination of Gard’s position raised questions about the future direction of the club. The entered tonnage was stagnating and claims were rising. A report to the Committee in October 1998 described a sea change in the conditions of the P&I industry. The traditional distinction between banking and insurance was breaking down and the Nordic financial market was consolidating.

In the late 1990s members of Gard’s management met the managing director of UNI Storebrand to discuss possible opportunities around their marine and energy (M&E) business and it was suggested that Gard create a jointly-owned company to take over the management of the Storebrand/Vesta M&E portfolio. This proposal had a number of benefits. For Gard, it would increase the volume of business over which the costs could be carried and enable the management to develop insurance products. It also offered a significant benefit to the Norwegian shipping community, in that it kept the combined Storebrand/Vesta M&E portfolio, with its seven per cent market share, inside Norway – a competitive bonus for owners. In October 1999 the proposal to form Gard Services was unanimously endorsed by the Committee.

Cross-selling and cost reduction
It came as something of a bombshell to Gard when Bernander accepted an offer to become head of the Norwegian Broadcasting Corporation in 2001. A thorough search process to replace him ended with the appointment of Claes Isacson, then Vice President and Head of P&I, as managing director.

The imminent task at that point was to align Gard Services’ three product areas more closely so that the organisation was better suited for cross-selling and realising cost reductions. The re-structuring that followed succeeded in forming a coherent and integrated organisation with a common focus. The organisation was headquartered in Arendal, with marine business centred in Bergen and energy in Oslo. The result was an organisation whose emphasis was firmly on financial strength, the development of new products and the ongoing process of loss prevention. The problem, however, lay in the fact that Gard was only managing the business, and this lack of control ultimately led to a sense of frustration that the business could not be taken to the next level.

An opportunity not to be missed
Events later presented an opportunity that Gard could not afford to miss. In 2002, If had begun to make plans for a stock-listing and, as part of this, they wanted to dispose entirely of the M&E business. This meant that Gard Services would either be dissolved or sold – either to a third party or Gard. In a remarkably short period – three months from start to finish – through a series of tough negotiations, Gard’s management began thrashing out the details of a deal to buy the business. The concept was to transfer the M&E portfolio to a new company which would be controlled by the Association, have If as a minority shareholder and be managed by Gard Services. Once the price for the portfolio was agreed, sufficient financing had to be raised in order to achieve the right level of capitalisation.

Despite some concern over the volatile nature of M&E insurance, the Committee resolved to proceed and to invest USD 110 million to buy If’s shares in Gard Services. The deal was closed in 2004 and the company was rated A- with a stable outlook by Standard & Poor’s.

The acquisition of the M&E business included an option for Gard to acquire the minority If stake before the end of a nine year contract period. However, the Committee expressed its strong support for Gard to exercise its option early and by February 2005 the deal was done. This allowed Gard to gain full control of the business and be able to reduce its overall capital requirements due to diversification benefits between P&I and M&E and realise significant savings in other areas. The creation of Gard M&E as a wholly-owned part of the group was as significant for the industry as it was for the group. It brought together P&I and M&E in one organisation; a mutual P&I association had also crossed the line to take ownership of a fixed-price marine insurance company.

Full circle
Time and the investment of considerable effort by the management team delivered their own answers. The resulting organisation built cross-functional teams, blending P&I and marine experience in both underwriting and claims, to offer a service that could address the widest range of client needs. Members and clients were being offered a wide range of protection and by the end of 2006 more than 50 per cent of the total premium income derived from clients with insurances in more than one business area. In addition, through operational synergies and prudent risk management, the financial results of the M&E underwriting earned a reasonable profit and the annual return on the investment portfolio brought results that were comparable to the best in the industry.

When Gard was founded in 1907 as a P&I insurer for sailing ships, it was a small part of a large group of Arendal-based insurers covering a range of products from hull and machinery to cargo. It is fitting that this focus on meeting clients’ needs for the last century has brought the group full circle again from a mono to multi-line insurer.

 

Gard News 189, February 2008/April 2008

Any comments to this article can be e-mailed to the Gard News Editor.

Gard News is published quarterly by Gard AS, Arendal, Norway.