Can they be justified at current levels

There would appear to be three main reasons that underlie the need for Release Calls:

1) Inadequate original premium levels: this only really applies in the first 12 months of the policy year, and, unless something has gone really awry with the underwriting function, ought not to be dramatic.

2) Claims deterioration after 12 months. Statistically, across the group in the past 10 years or so, this simply does not happen to any extent. If it did maybe the Clubs need to recruit new actuaries! Between 12 and 36 months, experience is just as likely to be favourable, and movements are rarely significant. Clubs also regularly report closed back year profits, again suggesting claims deterioration after the 12 month is more myth than reality.

3) Investment valuation movements. This is the real bete noir of the system as previously creditted investment gains can be reversed at a stroke at any point in the 3 years the policy stays open. For disbelievers, just look at the last bout of excess calls!

Does this justify current recurring high levels – up to 25% in some cases – on all open years? Probably not. The Clubs need to be a little more scientific, bearing in mind the totally random incidence of “type 3” issues. Throwing the baby out with the bathwater is no solution.

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