Run-off and Break-up valuation bases

[Mendoza2909]

Hi,

Is there any difference between a break-up basis and run-off basis?

It seems to me that run-off is letting existing policies see out their full term, break-up involves a commutation of all on-risk policies.

I’m specifically wondering what happens to existing business functions and what happens to claims that may arise on longer-tail business - i.e. a policy is commuted but there was an event occurring before the commutation date which leads to a claim, that the policyholder was unaware of at the time of the commutation.

Thanks!

 

[Ian Senator]

All these terms (and 'wind-up basis') are defined in the Glossary, so take a look there to check your understanding.
What happens to functions and 'old' claims will depend on the purpose of the valuation. For example, it may be that the company has ceased to exist and has transferred all outstanding liabilities and assets to a new company. In which case, the existing business functions don't exist (although the new company may have poached some of the staff or systems, for example) - and clearly the old company can't pay for a new claim, but you may find that the new company is liable, or that the policyholder has to claim on an insolvency fund such as the Financial Services Compensation Scheme.