For well over 10 years Willis has argued for reductions in release calls. This issue has gained increasing traction and average market release calls have reduced year on year for the last seven years.
As P&I clubs are mutual, release calls are an equitable mechanism. Historically however a number of clubs had succumbed to a natural temptation of using release calls as a commercial penalty for leaving the club rather than purely as a reasonable estimate of future exposure for the club. After years of highlighting this issue, the point was finally addressed in the International Group Agreement (IGA) from 20 February 2013.
This section outlines each club's release calls, discussing them in the context of current market averages and historic exposures.
The intent of release calls is to remove any potential future liability for further calls to the club following termination of membership in the particular club. By paying the release call, the member is 'released' from their obligation to pay future unbudgeted supplementary calls to the club.
Since the announcement of the IGA amendment (in late 2012), the market average release call has reduced from 10% to 6.8%.
In 2013 the IGA was amended to ensure that all clubs include an explanation of the factors that their Board of Directors or Committees had taken into account in setting the release calls. This should address the clubs' assessment of the risk that the published levels of expected premiums be exceeded. In making this assessment each club should actuarially assess premium risk, catastrophe risk, reserve risk, counter-party default risk, market risk and operational risk.
Disappointingly most clubs have subsequently simply stated (in essence) that their Boards have assessed the premium risk, catastrophe risk, reserve risk, counter-party default risk, market risk and operational risk and set the release calls accordingly, without any further rationale.
The market, on the whole, was relatively slow to respond to this change however this has picked up more momentum in 2015. Since the announcement of the IGA amendment (in late 2012), the market average release call has reduced from 10% to 6.8%.
This improvement, while still not exactly a revolution in the assessment of release calls, is material and welcomed.