Research Handbook on International Insurance Law and Regulation
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Research Handbook on International Insurance Law and Regulation

Edited by Julian Burling and Kevin Lazarus

Given its economic importance, insurance is a field that has been underserved as an area of academic study. This detailed book provides much needed coverage of insurance law and regulation in its international context.
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Chapter 8: Closing Books of Business: The Challenge of Fairness and Finality

David Whear and Bob Haken


JOBNAME: Lazarus PAGE: 1 SESS: 3 OUTPUT: Wed Dec 21 15:05:32 2011 8 Closing books of business: the challenge of fairness and finality David Whear and Bob Haken 1. BACKGROUND AND INTRODUCTION An insurance or reinsurance policy can give rise to liabilities which extend many years beyond the year in which the policy was written, so-called ‘long-tail’ liabilities. Insurers are required to make technical provisions against such liabilities and to hold regulatory capital to support them. This applies equally to insurers who continue to accept insurance business and those who have ceased to accept business and may be said to be in ‘run-off’, although the practical sanctions available to regulators for insurers in run-off who fail to meet prudential regulatory requirements tend to be somewhat weaker than those available against active insurers. Long-tail liabilities have, in particular, arisen out of occurrence-based liability policies, where the policy responds to claims relating to risks covered by the policy as long as the insured peril or event occurred during the policy period; such claims (for example in relation to asbestos, pollution, health hazard and product liability)1 frequently arise and are asserted years or decades after the claimant’s latent exposure to the product, substance or other peril.2 Long-tail liabilities are not, however, confined to occurrence-based policies. For example, a decade on, laddering claims asserted under Directors’ and Officers’ policies in the wake of the dot-com boom are not all settled and insurers still hold reserves against those claims.3 Product...

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