The hardest conversation a senior partner ever has with a broker is the one that starts “we are thinking about closing the firm” — because the next sentence is usually about a premium that nobody wants to pay.
Solicitors run-off cover is, on paper, a straightforward regulatory requirement: 6 years of professional indemnity cover after cessation, on SRA Minimum Terms and Conditions of Professional Indemnity Insurance (MTC) compliant wording. In practice it is the moment partners discover that the firm they have built over a working lifetime carries a structural liability that cannot be wished away, walked away from, or cheaply transferred. This guide is the practical companion to our technical run-off article. It is written for the partner who has not faced the closure conversation before, and it walks through what the run-off process actually looks like, why some firms merge specifically to avoid run-off costs, and where the cessation-versus-successor-practice line falls in real cases. The framework is set by the SRA Indemnity Insurance Rules; the statutory anchor is the Solicitors Act 1974.
When a partnership starts thinking about closure, the run-off question becomes the dominant financial issue almost overnight. The reason is structural. The 6-year MTC run-off is required by the SRA, the obligation to offer it sits with the firm’s existing participating insurer, and the premium for year 1 is typically a substantial multiple of the firm’s last annual premium — often around 200% to 300%, sometimes higher for firms with adverse claims experience or work-mix concerns. There is no fee income coming in to fund it. The premium falls due at the worst possible time for the partnership.
The conversation usually opens with three questions from the broker. Has cessation been formally decided? What does the partnership agreement say about funding run-off? Is there a possible successor practice in the picture? Those three questions matter because the answers determine whether the partnership is heading into a clean run-off placement, a successor-practice merger negotiation, or — worst case — a disordered closure with personal exposure risks for individual partners.
The successor-practice route is the only way to make the run-off requirement disappear. If another regulated firm takes on the closing firm’s clients, files and goodwill in a way that meets the SRA’s successor practice definition, the receiving firm’s ongoing MTC cover absorbs the closing firm’s claims liabilities and no separate run-off policy is needed. This is why some firms merge specifically to avoid run-off — the cost of the merger transaction, including any consideration paid to the receiving firm, can be materially lower than the cost of a 6-year run-off premium.
The opposite mistake is also common: structuring a transaction the partners think of as a “client referral” or “asset sale” while the SRA — looking at the substance — treats it as a successor practice arrangement that puts the receiving firm on the hook for the historic claims liability. That is a legal-and-regulatory test the partnership should engage specialist corporate advice on, not a question to leave to the brokers.
Once cessation is decided and there is no successor practice, the participating insurer is contractually obliged under the SRA Participating Insurer’s Agreement to offer a 6-year run-off policy on MTC-compliant terms. The insurer cannot decline. What the insurer can do is price it, and the price will reflect the firm’s claims experience, work mix, structure, and the insurer’s own appetite for run-off risk.
The policy that emerges is structurally the same as the firm’s active MTC policy:
After the 6 years expire, claims can still be made against the now-dissolved firm — the Limitation Act 1980, section 14A, can extend professional negligence limitation up to the 15-year longstop in section 14B, and the date-of-knowledge rules can stretch exposure further. The profession’s current backstop is the Solicitors Indemnity Fund Limited (SIFL), which has been retained as the vehicle for supplementary post-6-year run-off cover after a period during which the SRA reviewed whether the arrangement should continue. The detail has shifted more than once; partners approaching cessation should confirm the current SIFL position with their broker rather than relying on what they were told five years ago.
Section 3 of the Insurance Act 2015 — the duty of fair presentation — applies to the placement of run-off. The insurer is entitled to ask updated questions, and the firm has an obligation to disclose all matters that a prudent insurer would want to know in deciding whether and on what terms to write the cover. Section 11 continues to apply, protecting the insured against declinature for breach of terms that did not increase the risk of the actual loss.
Consider a 3-partner firm with a £90,000 annual PI premium and a book of work that is half residential conveyancing, a quarter private client, and the rest small commercial. The senior partner wants to retire in 18 months. The other two partners are open to merger with a larger regional firm if the terms are right, but would otherwise close down.
The partners ask their broker to model both routes. Run-off route: estimated year-1 premium around £230,000 (about 250% of the last annual premium for a conveyancing-heavy firm), totalling roughly £500,000 across the 6-year tail. Successor practice route: the regional firm offers to take on the client base, the office lease and the staff, with the receiving firm absorbing the run-off liability into its own MTC cover and paying no consideration for the goodwill. The closing firm’s partners receive nothing for goodwill but save the run-off cost, distribute around £400,000 of working capital between them, and emerge with positive net positions. The closing firm’s partners had not previously considered that being paid nothing for goodwill could be the better outcome — and that is the point. Run-off is a real cost; avoiding it through a properly structured successor arrangement can be worth more than headline consideration.
For any firm where the senior partner is within five years of retirement, the renewal conversation should include a run-off projection. Ask the broker for an indicative year-1 run-off premium based on current rates, and a 6-year cumulative estimate. Cross-check the partnership agreement: does it require run-off funding to be ring-fenced before any final distribution? If not, fix that now — not in the closure year. If merger conversations are realistic, engage an SRA-experienced corporate adviser early to test whether the transaction would qualify as a successor practice arrangement; the technical tests on staff transfer, client transfer, premises and continuity are not intuitive. Finally, confirm with the broker that the firm’s current participating insurer has not signalled any intent to exit the solicitors’ market — an insurer exit complicates run-off placement materially and is a known feature of the cycle.
Apex’s view: The run-off conversation is the conversation most partnerships put off until it is too late to do anything useful with the answer. We would much rather have it five years out, while there is still time to restructure the partnership agreement, model an alternative successor arrangement, and build a run-off provision into the firm’s financial planning. The partners who get caught short are not the ones who planned and chose to close. They are the ones who assumed the firm would continue indefinitely and never built the run-off reserve. Build the reserve.
Apex Insurance Brokers serves UK professional services firms and commercial businesses. Call 0117 325 0027, email hello@apexinsurancebrokers.co.uk, or request a quotation.
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