Over the last three years, LexCapital has developed specialist services which, either individually or in combination, can support insurance companies, particularly in the management of so-called ‘long-tail reserves’, i.e. reserves relating to claims that have been pending for a medium to long period of time. In insurance jargon, the management of this type of reserve falls under the umbrella of ‘Run-Off’.
Technical Reserves are provisions for potential liabilities that the insurer estimates it will have to pay out in response to claims received from policyholders. According to data compiled by ANIA, in 2024, member insurance companies set aside approximately €76 billion in Technical Reserves in the Non-Life sector.
The high cost of claims management, combined with the sharp contraction in the reinsurance market – through which insurers have historically ‘measured’ their risks and ‘re-hedged’ their portfolios – has necessitated a search for alternative solutions.
For organisational reasons and, generally speaking, for reasons of cost-effectiveness, the run-off phenomenon can be compared – by reversing the debtor/creditor relationship – to the process initiated in the banking system for the disposal of non-performing loans.
The high capital absorption of the run-off of certain insurance business lines, particularly long-tail, is increasing the focus on diversified, often costly solutions ranging from retrospective reinsurance to legal finality. At the same time, the protracted nature of the long-tail run-off ties up significant human and infrastructural resources, diverting them from the insurance company’s strategic focus
In Italy, in particular, retrospective reinsurance and/or legal finality solutions are scarce and, where available, come at very high costs: there is, in fact, a mismatch between the operators—all of whom are foreign—offering these instruments and Italian companies, primarily due to the risk being assigned, in any case, to the domestic market and, at the same time, due to the mistrust and lack of familiarity that foreign operators have with the national legal and judicial system.
The analysis carried out revealed that:
- The first claims processed related exclusively to positions with an average ageing (year of provision allocation) of over 10 years;
- the evolution of claims often leads to the formation of large portions of run-off or clusters defined as “cases in litigation that are difficult to manage and settle”, which present a high intrinsic potential for provision shortfalls;
- the difficulty in managing the aforementioned cases, known as “stuck cases”, is attributable both to high internal organisational costs and to the resulting high financial costs, with a marked focus on specific run-off issues, which would entail a reallocation of external legal resources to critical cases, a task that is certainly complex.
The analysis of the 47 litigation cases was carried out using LexCapital’s proprietary Predictive Justice tool, RischioLegale. Following this analysis, the Company decided to entrust LexCapital with the management of further cases.