Run-Off

What is Insurance Run-Off?

Insurance run-off arises when an insurer, syndicate, or captive ceases to write new business in a particular class but retains its obligation to manage and pay outstanding claims on policies already in force or previously issued. The term "run-off" describes the process of allowing these legacy liabilities to wind down over time — sometimes over many decades for long-tail classes such as asbestos, environmental liability, or professional indemnity — until all claims are finally settled and the portfolio is fully extinguished.

Run-off can arise for several reasons: an insurer may exit a class of business that is no longer profitable; a Lloyd's syndicate may cease trading after a poor underwriting year; a company may be acquired and its legacy portfolios placed into managed run-off; or a regulator may require a firm to cease underwriting while it addresses financial or governance concerns. In each case, the obligations to existing policyholders and claimants remain and must be honoured even though no new premium income is being generated.

Run-Off Management Challenges

Managing run-off portfolios is operationally distinct from active underwriting. The run-off manager's primary task is to identify, quantify, and settle all outstanding claims liabilities as efficiently as possible, while managing reinsurance recoveries, resolving coverage disputes, and maintaining regulatory compliance. The challenge is compounded by the age of many run-off portfolios: claims documentation may be decades old, original policy wordings may be difficult to locate, and key witnesses or records may no longer be available.

Long-tail classes are particularly demanding. Asbestos-related disease claims, for example, may arise 30 to 40 years after exposure, meaning a policy written in the 1970s may still generate new claims today. Estimating the IBNR (Incurred But Not Reported) liability in such portfolios requires sophisticated actuarial analysis and careful monitoring of legal trends, court decisions, and emerging medical evidence about disease latency.

Reinsurance Recoveries in Run-Off

A critical dimension of run-off management is the pursuit of reinsurance recoveries. Many run-off portfolios carry significant reinsurance assets — amounts owed by reinsurers in respect of ceded losses. Recovering these amounts requires the run-off manager to maintain accurate records of reinsurance treaties, submit claims advices to reinsurers in accordance with treaty terms, and pursue disputed recoveries through negotiation or arbitration where necessary. The creditworthiness of reinsurers — and whether they themselves remain solvent — is an ongoing concern, particularly for very old run-off portfolios where original reinsurers may also be in run-off.

Schemes of Arrangement and Portfolio Transfers

Run-off portfolios can sometimes be resolved or transferred through formal legal mechanisms. A Scheme of Arrangement (a UK court-approved process) allows a run-off insurer to make a final settlement offer to all policyholders and claimants, extinguishing future liabilities in exchange for an agreed payment. Portfolio transfers under Part VII of the Financial Services and Markets Act 2000 allow run-off liabilities to be transferred to another insurer, fully releasing the original carrier. These mechanisms require extensive documentation, court approval, and regulatory consent, placing high demands on the quality and completeness of the run-off portfolio's records.