While there is no clear agreement on the exact definition of
run-off in the insurance context, it is generally taken to mean one
of two things. This article primary discusses the first form of
run-off, that being an insurer ceasing part or all of its
business.
1. An insurance company will considered to be in run-off when it
ceases to take onboard any new business but will continue to honor
existing claims. Usually when the net balance of the company's
assets and liabilities is such that the insurer does not have the
ability to honor all existing policies based on their predicted
loss, the company will cease to write new policies and attempt to
use their existing assets to pay off any claims arising from
existing clients. In such instances, those with existing claims
need not worry about their insurer being in run off, as their claim
will be considered superior to that of any creditor.
