Norway-based marine insurer Gard has said that in the first six months of its policy year to August 20th, the financial position of Gard P&I (Bermuda) Ltd (the Club) and its subsidiaries (the Group) remained “robust and healthy”.
Gard said that this was achived despite the H1 results being negatively affected by several major incidents within the International Group Pool, and the spread of the COVID-19 pandemic.
Gard said that the increase mainly came from Pool claims from International Group Clubs, but also its own mutual portfolio has performed below expectation. Conversely, the results from the for-profit lines of business were positive and better than expected for the first half year of 2020.
Total equity for the Gard group, which provides security and stability for the mutual’s membership, declined to $1.117bn by August 20th, from $1.179bn on February 20th.
The net result on an Estimated Total Call (ETC) basis was a total comprehensive loss of $62.4m (H1 2019, gain of $64.7m), with a Combined Ratio Net of 116% (H1 2019, 96%).
Gross written premium on a consolidated basis was $685m (H1 2019, $710m).
Gard said that its investment portfolio experienced some losses due to the uncertainty in the financial markets caused by the pandemic. Gard has a moderate exposure to equities to reduce the risk of large losses from the investment portfolio.
By August 20th most of those losses had been recouped and the group’s combined non-technical loss was $9m, including taxation and other comprehensive income/loss. The Gard group’s investment portfolio returned -0.4% for the first half year of 2020, versus 3.0% in the comparable period last year.
The main contributor to returns over the period was the investment grade bonds portfolio. The returns suffered from allocations to emerging market debt and high yield, in addition to an allocation to global tactical allocation, Gard said. A below-market weighting towards the big technology companies, which have outperformed the market this year, also hurt performance.
The technical result was a loss of $54m. The negative result was below that expected by the Group and below the good start in the comparable period last year.
Gross earned premium on ETC basis was $425m, an increase from the comparable period last year. There had been a strong growth in the Marine business and rates were hardening. The P&I insurance market was still soft, said Gard, although it noted that the market was expected to turn. The premium volume for P&I mutual had slightly reduced due to layup returns.
Claims incurred for own account totalled $350m, a large increase from the comparable period of last year. There had been several large P&I mutual claims in the first half of 2020 and particularly a large increase in Pool claims from the International Group clubs, which was a continuation of the trend from 2019. Claims development had also been worse than expected.
For Marine & Energy, gross earned premium was $175m, a substantial increase on the same period last year. The increase was attributed to growth in volume for Marine business and a hardening of rates for both Marine and Energy.
Claims incurred for own account totalled $99m, an increase from the comparable period of last year, although that increase had been expected as the volume of business was increasing. There had been few large claims during H1 2020 and claims incurred was better than expected.
The technical result for Marine & Energy was a profit of $15m. The combined ratio was 89%.
For P&I, gross earned premium was $250m, a small decrease from the comparable period last year. A volume increase in P&I mutual was insufficient to offset the effect of reduced premium rates due to churn and lay up returns. Gard said that the P&I market had been soft for a number of years due to a benign claims development. The ongoing soft market was expected to turn as pricing needed to reflect the possibility of major claims as happened in the first half year of 2020.
Claims incurred for own account totalled $251m, a large increase from the comparable period of last year. The technical result for P&I was a loss of $68m. The combined ratio net for the period was 134%.
The group’s capital adequacy ratio fell to 236%, caused mainly by the adjusted risk picture, but remained well within the Comfort Zone.
The Club’s Board of Directors typically sets the level of the last instalment of the ETC for the policy year at its May Board meeting. This year the Board decided to support its Members’ cash flow situation by delaying the decision on the final premium instalment for 2019 policy year until November 2020. The last premium instalment for the 2019 policy year will be set at of 15 % per cent of the original ETC, which represents a 5% reduction on the agreed ETC at renewal.
Last instalment and Supplementary Calls:
- 2018 policy year: The year is expected to be closed in October 2021 with no further calls.
- 2019 policy year: The year is expected to be closed in October 2022. The last premium instalment has been set at 15% of the original ETC, to be levied in November 2020 and representing 5% reduction on the ETC 2020 policy year: The estimated Last Instalment level should remain at 20% of ETC and will be evaluated by the Club Board in May 2021.
- 2018 policy year: 5%
- 2019 policy year: 5%
- 2020 policy year: 10%
- 2021 policy year: 10%
Gard said that, as a result of the negative development of the claims environment with emphasis on several large claims in the International Group Pool, but also in Gard’s own entries, Members would have to expect “a moderate increase in the ETC for owners mutual P&I for the 2021 renewal”. However, instead of a General Increase, individual members rates will be adjusted to reflect their risk profile and claims record. “Overall, we seek to price Owners’ Mutual P&I to target a CRN of 102.5% on an ETC basis”, Gard said
Gard CEO Rolf Thore Roppestad said that “we aim to run the mutual business at a small loss, balanced with the returns earned on our commercial insurance book which have been positive and better than expected for the first half year of 2020”.
He noted that Gard would only collect 75% of the last instalment for the 2019 policy year, “a total saving of $18m for the Members”, adding that “the high level of casualties seen over the past year reminds us of the inherent unpredictability in the marine insurance industry. Reductions in the average pricing of owners mutual P&I over recent years have been justified by a benign claims development, but this has deteriorated over the last year with the market seeing greater severity in claims.”
Finally, Gard noted that in October 2020 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).