Rate this article:  

Table of contents

Rule 13 Supplementary Calls

If the Estimated Total Calls for any Policy Year are considered insufficient to cover the claims on, or costs, expenses and outgoings of the Association, including any allocation to reserves the Association may deem appropriate and including the excess, if any, of claims costs, expenses and outgoings of any closed Policy Year over the provisions or reserves made thereof, the Association may at any time during or after the end of the relevant Policy Year call for one or more Supplementary Calls which shall be levied on each Member in proportion to the net Estimated Total Calls for such year, unless the entry has been accepted on special terms which otherwise provide.  

Guidance

The fundamental principle of mutuality is that the funds which are necessary to meet the liabilities of a mutual association are provided by the members of that association. Such funds are the predominant source of capital for a mutual association which, unlike joint stock companies, cannot raise extra capital by new share issues. Accordingly, if the funds originally made available by the membership to the association subsequently prove to be insufficient to meet the expected liabilities, further funds need to be provided by the membership. Therefore, all mutual associations have rules enabling the association to call for further funds from the membership in such circumstances. Rule 13 is the vehicle which enables the Association to do so if necessary in the form of a Supplementary Call which is premium that is payable in addition to the Estimated Total Call that was originally forecast.1 

The provisions of Rule 13 do not apply to fixed premium entries.2 

(A) … Estimated Total Calls …are considered insufficient to cover… (Rule 13)
The Estimated Total Calls for Ships entered in the Association are set at a level which is expected to meet the total liabilities of the Association for the Policy Year after taking into account anticipated income from investments, fixed premium entries and additional business operations. In most Policy Years, this will be sufficient, but the envisaged financial result for a Policy Year may become severely undermined by unexpected developments such as a significant downturn in investment income, a significant shortfall in reinsurance recoveries and/or significantly adverse claim developments. Accordingly, it may be necessary to levy one or more Supplementary Calls on the membership to achieve a balance between total income and expenditure3 for the relevant Policy Year. 

(B) …including any allocation to reserves the Association may deem appropriate… (Rule 13)
Supplementary Calls are designed to maintain the financial strength of the Association and therefore, when deciding whether or not to levy a Supplementary Call, the Association is not bound to consider the Policy Year in isolation. The Association may levy a Supplementary Call if it considers it appropriate at any particular point in time to make an allocation to the general reserves. The Association is also entitled to do so if, for example, after the closing of a Policy Year, the claims made during that year develop adversely and it does not wish to draw down on the reserves. 

(C) …may at any time… (Rule 13)
The Association may levy one or more Supplementary Calls at any time during or after the end of the relevant Policy Year, but the Supplementary Call(s) that is/are levied on the Members for the relevant Policy Year cannot be levied after that Policy Year is closed.4

(D) …one or more Supplementary Calls… (Rule 13)
In practice, many years may elapse before the total liabilities of the Association for a Policy Year are finally settled. However, it is usually possible to assess, within 12 months of the end of the relevant Policy Year, whether any Supplementary Call will be necessary in respect of that Policy Year. Therefore, in most cases, the Association would expect to be able to give a firm indication within two years of the end of the Policy Year. 

A Member continues to be liable to pay Supplementary Calls in respect of any Policy Year for as long as that Policy Year remains open and the Member will be relieved of his obligation to pay Supplementary Calls in respect of that Policy Year only upon payment of a Release Call5 or upon closing of that Policy Year.6 

There is no limit to the number or amount of Supplementary Calls that can be levied in respect of a Policy Year. While the Association rarely7 levies Supplementary Calls, it is entitled to levy more than one such Call where this is deemed necessary. 

A decision to levy Supplementary Calls is made by the Board of Directors8 of the Association and a Supplementary Call is due for payment on the date specified by the Association.9 

(E) …in proportion to the net Estimated Total Calls… (Rule 13)
A Supplementary Call is calculated as a percentage of the net Estimated Total Calls for each year. The net Estimated Total Calls are calculated after deducting any applicable rebates, laid up returns and other deductions.

 

 

1 A Supplementary Call is sometimes referred to as either an ‘additional call’ or an ’unbudgeted call’, the latter phrase illustrating the unexpected nature of the premium payable.
2 The final words of Rule 13 make this clear ‘unless the entry has been accepted on special terms which otherwise provide’.
3 Any income shortfall or unexpected expenditure may necessitate a Supplementary Call, e.g. significant shortfall in reinsurance recoveries, shortfall in premium payment from Members etc. Such unrecoverable sums are considered an expense of the Association under Rule 20.8.
4 The Association cannot levy a Supplementary Call in respect of a closed Policy Year, i.e. call upon further premium from Members in respect of their entries in that year, but may levy a Supplementary Call in respect of any open year to make allocation to the reserves so as to regain the financial strength considered necessary to make up for the adverse development of the closed year.
5 See Rule 15.
6 See Rule 16.
7 No Supplementary Call has been levied since 1992 (which was in respect of the 1991 Policy Year).
8 See Articles 6.2.e of the Bye-Laws of Gard P. & I. (Bermuda) Ltd. and 9.2.d of the Statutes of Assuranceforeningen Gard -gjensidig-.
9 See Rule 20.5.