A run-off results from the decision of a reinsurance or insurance company to discontinue lines of insurance business entirely or partly and to strengthen other lines of business. The word “run-off” means the management of claims that arise out of inactive or discontinued books of business disconnected from new policies. The purpose of a run-off is mainly to refer to a situation where the entity is able to proceed all its activities in the foreseeable future, apart from the discontinued lines of insurance, without having to go through any liquidation procedures.
Re-evaluation of the meaning of run-off
20, 30 and even 10 years ago, run-offs were not very reputable. The word “run-off” has been associated with liquidation and insolvency. While Run-off solutions continue to develop in London and Bermuda and have become a mature industry already, they were still taboo in Continental Europe and Asia. But the world has changed completely. The perception of the insurance sector has fundamentally changed. Insurers and reinsurers embrace a run-off as a strategic business tool enabling them to withdraw from lines or classes of business that are loss making and which can free up much-needed resources to be deployed elsewhere. Meanwhile insurers and reinsurers adopt discontinued business as unavoidable and assess a run-off as a reputable decision. As a consequence the connotation of the phrase “run-off” has changed.
Reason for ongoing reform in the run-off business
Insurance companies are dynamic concerns that evolve as they respond to changes in demand for different insurance lines and products. A regional or local market, line of business, or product design that may have once been strategically or financially attractive may no longer be so. Insurers in Continental Europe recognise that they can no longer ignore their discontinued business. Another factor stimulating the ongoing reform in run-off business is the rapid consolidation of the global insurance marketplace over the past ten years. Thus there is an increasing number of run-offs worldwide.