Commission in Run-Off: What Happens to Broking Income in a Portfolio Transfer

Most writing about Indian broker transactions stops at signing. It grades revenue quality, argues about multiples, and designs the earn-out. That work is real, and broker M&A valuation under reform uncertainty covers it. This piece starts where that one ends, at the least examined phase of the exercise: the period after a book has moved and before the selling entity stops existing, when income is still arriving on business nobody is writing any more.

That period has a name in insurance and almost none in Indian broking practice. Run-off is the state of a portfolio that continues to generate obligations and cash but no new production. An insurer in run-off has a whole regulatory literature about it. A broking firm in run-off usually has a spreadsheet, a departing finance person, and a founder who assumed the money would follow the deed.

It does not follow the deed. A portfolio transfer moves an intention. What moves the income is a chain of separate events: each client mandate novated or re-executed, each insurer's broker code repointed, each renewal actually written under the new code, and each aged commission balance collected by whichever entity is still entitled to it. Any link that does not close leaves a policy stranded, a receivable orphaned, or a servicing duty attached to an entity that has emptied its desks.

The volume of these events is rising. Consolidation has run hard through FY2024-25 and FY2025-26, the Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 opened 100 percent FDI in intermediaries from 5 February 2026 and widened the buyer pool, and the same Act made registrations perpetual, which removes lapse as an exit route but does nothing to stop commercial exits.

The first question decides everything that follows: is the entity moving, or is the book moving?

Share transfer: the licence rides with the company

In a share sale, the broking company itself changes owner. The legal person that holds the registration, signed every client mandate, and appears on every insurer's broker code is unchanged. Nothing novates because nothing has to. Client agreements continue by their own terms, insurer agreements continue, commission keeps arriving at the same code, and the only run-off is whatever the share purchase agreement invents through deferred consideration.

This is why perpetual registrations since 5 February 2026 matter in a way that is easy to understate. The registration is now a durable attribute of an entity rather than a renewable permission, which makes buying the entity a cleaner way to buy the book than buying the book.

Business transfer: everything must move one at a time

In a business or asset transfer, the book moves and the selling entity stays behind. The agreement can transfer employees, systems, leases and goodwill in one instrument. It cannot transfer a tripartite commercial relationship by fiat. Three categories have to move individually:

1. Client mandates. A broking mandate is a contract for personal services with a named intermediary. Whether it can be assigned depends on its own terms, and most Indian mandates are silent or expressly require consent. Silence favours the client, not the transferor.
2. Insurer arrangements. The broker code is the operative record of who is recognised on a policy, and an insurer is not obliged to repoint one because two brokers signed a deed with each other.
3. The policies themselves. Every live policy carries a code, and that code changes policy by policy or not at all.

Individual broker-of-record changes are well-trodden ground: what the letter must contain, how insurers validate it, how the outgoing firm can contest. Those mechanics are set out in orphan policies and broker-of-record changes, and this piece assumes them.

What that framing does not capture is what happens when the same event has to occur three thousand times in one quarter, initiated by the two brokers rather than by the client. Scale changes the problem in three ways.

Consent cannot be presumed, and cannot be batched. A transferor that writes to its book announcing that mandates have been transferred has announced a fact that is not yet true. Where the mandate requires consent, silence is not consent, and an insurer asked to repoint a code on the strength of a deed between two brokers will ask for the client's own instruction. The honest sequencing is: transferor explains and recommends, client executes a fresh mandate or a novation, transferee files it with each insurer, insurer confirms per policy.

Leakage is a rate, not an exception. Every step above sheds accounts. Clients who never respond. Clients who use the moment to run a fresh selection and pick a third firm. Clients whose authorised signatory has moved on. Branch offices that never action the instruction. A transferor promising a clean book of 3,000 policies and delivering confirmed codes on 2,400 has not been dishonest; it failed to model the leakage rate and warranted a number it did not control.

Timing collides with the renewal calendar. Every policy that renews mid-novation renews under whichever code is confirmed on the day, so accounts expiring inside the transition window should be sequenced first, not alphabetically.

The structural answer is to key consideration to confirmed codes rather than to listed policies. A schedule built on policies whose code change the insurer has confirmed in writing, measured at a defined date, converts an argument about who lost the client into arithmetic both sides can audit. It also gives the transferor a direct reason to keep working the transition rather than treating completion as the finish line.

The most expensive misunderstanding in a broking business transfer is the belief that duties end when the people leave.

They do not. The code of conduct in the IRDAI (Insurance Brokers) Regulations, 2018 attaches to the registered intermediary, and a registration is live until surrender is accepted. For as long as the transferor's registration is live and policies remain coded to it, the transferor is the servicing intermediary on those policies. It owes the client the duties it always owed, regardless of the fact that the account executive who knew the file now works for the buyer, and regardless of what the two brokers agreed between themselves. A deed between brokers does not bind a client.

In practice, during a transition that typically runs two to four quarters:

• Claims do not pause for a transaction. An open claim on a policy still coded to the transferor stays the transferor's to service. The transferee has no standing with the insurer until the code moves, and it will not take the file for free.
• Endorsements keep arriving. Mid-term changes on unnovated policies come to the entity on the code. A stalled endorsement is the fastest way to lose the client to a third firm before either side has finished arguing about who owned it.
• Grievances follow the code. A complaint is routed to the intermediary of record. An empty entity cannot answer one.
• Surrendering early does not escape this. It converts the remaining book into orphaned policies, with the client left dealing directly with insurers and the transferee's renewal prospects damaged along with the transferor's reputation.

The workable answer is a transition services arrangement written into the transaction: the transferee performs servicing on unnovated policies as the transferor's contractor, at a costed rate, with the transferor retaining the responsibility it cannot delegate and the transferee doing the work it is staffed to do. That arrangement needs an end date, and the end date is the trigger for deciding what to do with whatever has not moved by then.

Follow the money through the transition and it splits into four streams that behave differently. Firms that model them as one number get the run-off wrong in both directions.

1. Aged commission on policies placed before the transfer. Earned by the transferor at placement, still uncollected, owed by insurers to the transferor's code. It is a receivable of the retained entity, not part of the book sold, and its collectability turns on the reconciliation quality of the transferor's own ledgers, covered in commission receivable ageing.
2. Current-term commission on policies that novate mid-term. Market practice keeps placement-period brokerage with the broker who placed the business, so a mid-term code change moves servicing and renewal rights without moving the current term's income. The transferor collects it; the transferee does the work. Between arm's-length firms that is a known asymmetry to price. Between a seller and a buyer who have just signed, it is a fight waiting to happen unless the agreement says who keeps it.
3. Renewal commission after novation. The actual asset: earned by the transferee, at the insurer's current terms rather than the transferor's legacy terms, on whichever policies actually renewed under the new code. It is also the stream most exposed to the reform pipeline. The commission overhaul reported in early July 2026, with a consultation paper expected by end July, contemplates staggering payment across the policy life and differentiating caps by product type and tenure. Those are proposals and none is a rule, but a transferee valuing a renewal stream at signing-date rates is valuing an assumption.
4. Commission on the tail that never moved. Policies still coded to the transferor keep paying it for the balance of their term. This is the only genuinely run-off income in the sequence: earned on production that stopped, arriving into an entity that is winding down, terminating at each policy's expiry.

The fourth stream decides when the transferor can actually close, and its end date is later than founders expect once long-term policies, multi-year construction covers, marine open declarations and anything with instalment premium are counted.

A firm in run-off has one job on the revenue side: know what it is owed, prove it, and collect it before the entity becomes too thin to chase anything.

Start with recognition. Run-off commission is not a new performance obligation. It is consideration for placement performed in a prior period, arriving late, and it should already have been recognised when the placement was performed rather than when the cash lands. A firm that has been recognising commission on receipt has been running a cash book, and will find at run-off that it cannot tell an uncollected receivable from income it never earned.

The reconciliation is now the whole business

Once production stops, the retained entity's only economic activity is reconciling insurer statements against its placement register and chasing differences. Three things make that harder than it ever was in operation:

• The people who knew the ledger have gone. Reconciliation knowledge is tacit and it walks. Extract it before the transfer completes, not after.
• Insurers lose interest in an entity that brings no new business. An unexplained INR 4 lakh difference on a code that placed INR 20 crore last year gets attention. The same difference on a dormant code does not.
• The tail's own errors surface late. Endorsement-driven adjustments, cancellations, refunds and premium reversals all move commission after the fact, and each one arrives at an entity with nobody left to notice.

Sequencing the wind-down

1. Freeze and reconcile the receivable against every insurer code at the transfer date, and get each insurer's written confirmation of the balance. This is the last moment the entity has any standing to insist.
2. Run the tail to its last expiry under a transition services arrangement, responsibility retained and labour contracted.
3. Provision the residue honestly. Balances that have survived a reconciliation, a confirmation request and two quarters of chasing will not be paid because the entity waited longer.
4. Surrender the registration only when the tail is empty, the receivable is collected or written off, and the professional indemnity position for the run-off period is settled, since claims against a broker can arrive well after the last policy has expired.

None of this is difficult. It is simply never scheduled, because it happens after the interesting part of the deal is over and neither side wants to own it. A one-page plan agreed before signing resolves most of it: the structure decision with the run-off cost of a business transfer costed rather than assumed away; the novation programme sequenced by expiry with a target confirmed-code rate; the split of the four income streams written down; the transition services arrangement with an end date; the tail's last expiry computed from the actual policy register; and the surrender trigger. Every one of those items is a negotiation between two parties whose interests diverge the moment the money is paid. Agreed in advance, they are terms. Discovered afterwards, they are disputes, argued between a buyer who has the people and a seller who has the obligations.