Insurance and reinsurance companies have long dealt with managing and mitigating legacy exposures to asbestos, lead, pollution, toxic tort, construction defect and other long-tail liabilities. Running off these more volatile and closed books of business requires deploying proper operational resources and creating a claims handling process sufficient to evaluate and assess the underlying risks and volatility in the various portfolios. Pressure is always on to accurately anticipate the financial impact to the company.

Many companies abandoned traditional risk management policies and hierarchical claims handling structures in favor of more bespoke and specialist strategies for handling these portfolios. In some cases, liabilities remained with the originating company. In others, they were transferred out by way of sale, portfolio transfer, debt-purchasing vehicles, bankruptcy or some other form of ring fencing. With the increasing complexity of liability transfers and reinsuring, runoff claims are in need of more rigorous scrutiny.

Runoffs are not part of any current books of business and provide no ongoing source of premium or other income. In most cases, they do not relate to the core business of the ongoing company. They are the claims from business placed long ago by companies that looked very different from their mature successors. Underwriters and executives who wrote the policies are long gone from the companies, and documents and memories fade or even disappear. Without an ongoing trading relationship with the insured (or reinsured), emphasis shifts from one of partnership to one of fulfilling legal and corporate requirements—a pretty sterile and somewhat impersonal transaction.

Tort Litigation Determines Priorities
Despite their lengthy run, legacy claims and related mass tort litigation haven’t leveled off; in fact, we are experiencing a resurgence of complex liability claims that are testing even the most sophisticated and experienced of direct and reinsurance claims operations.

Old trends are now new trends. Coverage implications of asbestos non-product claims, acceleration of asbestos liabilities due to the bankruptcy of insureds, projections and reserving for asbestos and toxic-tort-related liabilities, commutations and the impact on retrocessional coverage, and other emerging sources of bodily injury and property damage liability still jockey for position atop the issues “leader board.”

Court decisions affecting insurer and reinsurer liability have already spurred efforts for judicial and legislative reform, policy and contract wording changes, industry-wide reserve and surplus evaluations, and corporate restructuring. Direct insurance and reinsurance writers have taken action as a result of previous trends in legacy exposures.