What is Runoff Liability? +
Runoff liability is claims liability which continues to exist past the expected lifetime for which the underwriter originally estimated. In other words, old claims.
Is it the same as runoff insurance or a runoff provision? +
No. Runoff insurance is an insurance policy provision that covers claims made against companies that have been acquired, merged, or have ceased operations. Runoff insurance, also known as closeout insurance, is purchased by the company being acquired and indemnifies—exempts from liability—the acquiring company from lawsuits against the directors and officers of the acquired company. A runoff provision in a claims-made policy states that the insurer remains liable for claims caused by wrongful acts that took place under an expired or canceled policy, for a certain time period.
What options are there in managing runoff liability? +
• Continue to manage it as you have been.
• Outsource it to a third party to manage.
• Reinsure it through a Loss Portfolio Transfer (LPT).
•Sell the liability and obtain full legal and financial closure. This can be done through an assumption and novation agreement.
How long does the process take? +
Depending on the nature of the claims, the age, size, complexity and volume of claims to be reviewed the process ultimately could take a few months. However, an indicative offer or price estimation can usually be provided within a few weeks of initial discussions.
How much runoff liability exists? +
PwC produces annual reports which describe the state of the runoff market. Their estimation is that the traditional insurance market worldwide is carrying a load of $715 Billion in reserves. Almost half of that is in the U.S. In the captive insurance market, we estimate that worldwide market is carrying approximately $52 Billion. As in the traditional market, approximately half of that is in U.S. domiciles.
What are the benefits of transferring my runoff liability to another carrier? +
The most obvious benefit is being able to eliminate claims and litigation costs of which one is already aware. In the same respect, there is always the possibility that one’s unknown exposure will rise. Additionally, by transacting runoff liability to another carrier, one is able to free up capital and surplus, potentially increase credit rating and allow the focus to remain on the intention of the original underwriting.