Buying Run-off

This phenomenon has caused plenty of controversy. Much has been written about the effect this could have on buyers. And much has been said about the willingness of such parties to pay claims. But there is a broader point here that needs addressing. The run-off market now holds a far more central and visible position within the wider insurance industry. The issues discussed in this supplement reflect this. Run-off is no longer a shadowy, little-understood industry a world away from the so-called live market. It is now far more mainstream. As such it needs to be understood by all in the industry. As John Winter points out in the opening article Grasping the nettle, the insurance industry must now prove that it has instilled a culture of professionalism that will help it deal with and perhaps lessen the severity ofthe cycle.

This culture will bring with it a far more pragmatic attitude to dealing with old books of business. As discussed by Juliette Stevens in her article An early exit, it is now far easier for insurers to get rid of old books of business once and for all, thanks to legal changes. Given the problems old books of business have caused for so many players, many are jumping at the chance to sell them. As Ian Clark explains in his piece A complete solution, the number ofinsurers and reinsurers putting books of business into run-off is increasing all over the world.

These techniques might have an initial cost attached. But because many companies are now making handsome profits, they can afford to use them. The techniques are attractive because they free up resources and reduce expense ratios. And, as Dan Schwarzmann outlines in his article Avoiding the pitfalls, selling run-off operations removes the burden of managing the books in-house. Finally, ridding the balance sheet of old liabilities can do wonders for a company’s share price. From the point of view of an insurance or reinsurance company, selling old books of business makes complete sense. It is a wonder that more companies have not embraced this method more fully before.