Run-off

Run-off refers to the run-down management of an insurance or reinsurance portfolio that has stopped writing new business but must continue settling the claims arising from contracts already concluded until they are fully extinguished. A portfolio may enter run-off following the abandonment of a line, the liquidation of an actor, or a strategic decision to cease an activity deemed unprofitable. Run-off management does not mean immediate closure, since commitments can run for years, even decades on long-tail lines. A specialized market has developed around the transfer of these portfolios, with dedicated actors buying run-off liabilities to manage them more efficiently, betting that the transferred reserves will suffice to cover residual claims while generating a margin. This legacy market lets a cedant free up tied-up capital and refocus, while transferring reserving uncertainty to a specialist. The central risk of run-off is reserving, since underestimating future claims can turn an apparently profitable operation into a loss, particularly on late claims and lines with strong potential for adverse development.

An insurer decides in 2025 to exit medical liability, a line that has run at a loss for three years. The portfolio enters run-off: no new policies, but claims from the 2018 to 2025 underwriting years continue to be reported and developed for ten to fifteen years. Rather than managing this long-tail liability alone, the insurer negotiates a loss-portfolio transfer to a legacy specialist, which acquires the reserves for 85 million euros against an internal estimate of 80 million, betting its run-off expertise will let it settle claims below the transferred reserves.

run off, extinction de portefeuille, gestion extinctive