"Run-off portfolio refers to insurance policies or reinsurance contracts terminated but for which the Insurer or the Reinsurer remains liable for until the final settlement and payment of the claims. It may be a business or a territory for which the Insurer or Reinsurer is no longer operating but where contracts or liabilities are still in force."
Runoff agreement is like commutation, but working in the opposite direction. Primary re-assumes the residual liability in commutation, Reinsurer does in runoff agreement.
I think a run-off agreement is both retroactive and prospective, right? Otherwise a company cannot fully exit a business.
If yes, then can i assume novation which is similar to run-off agreement can also be both retroactive and prospective?
My next question will be the reinsurance accounting for novation stated in wiki:
a novation may be eligible for reinsurance accounting treatment but not in these situtations:
- retroactive reinsurance
So a novation with only both retroactive and prospective nature is eligible for RI accounting? (what about run-off agreement?)
Yes, a novation with both retroactive and prospective elements can qualify for reinsurance accounting, including under run-off agreements. This is contingent on meeting specific conditions such as the complete extinguishment of the original obligations and ensuring there's no further exposure to loss on the novated business. Novations, if meeting certain criteria, can be treated as prospective reinsurance agreements.
Comments
Here's a definition of runoff:
"Run-off portfolio refers to insurance policies or reinsurance contracts terminated but for which the Insurer or the Reinsurer remains liable for until the final settlement and payment of the claims. It may be a business or a territory for which the Insurer or Reinsurer is no longer operating but where contracts or liabilities are still in force."
https://blog.ccr-re.com/en/what-is-run-off
Runoff agreement is like commutation, but working in the opposite direction. Primary re-assumes the residual liability in commutation, Reinsurer does in runoff agreement.
I think a run-off agreement is both retroactive and prospective, right? Otherwise a company cannot fully exit a business.
If yes, then can i assume novation which is similar to run-off agreement can also be both retroactive and prospective?
A run-off agreement can be retroactive, prospective, or both, depending on the parties' intention.
A novation usually replaces a party to the original contract. Retro/pros status depends on the underlying contract.
My next question will be the reinsurance accounting for novation stated in wiki:
a novation may be eligible for reinsurance accounting treatment but not in these situtations:
- retroactive reinsurance
So a novation with only both retroactive and prospective nature is eligible for RI accounting? (what about run-off agreement?)
Yes, a novation with both retroactive and prospective elements can qualify for reinsurance accounting, including under run-off agreements. This is contingent on meeting specific conditions such as the complete extinguishment of the original obligations and ensuring there's no further exposure to loss on the novated business. Novations, if meeting certain criteria, can be treated as prospective reinsurance agreements.