Category: Claims handling · Reviewed by Taylor Watts, Broker · New Business · Last reviewed 2026-06-11
Facultative recoveries are recoveries under facultative reinsurance — where the reinsurer has accepted cover on a single specific risk rather than under a treaty covering a portfolio — and where the recovery is claim-specific to that risk.
Facultative reinsurance is the bespoke form of reinsurance: each cession is individually negotiated for a specific underlying policy or risk. The reinsurer accepts the specific risk on agreed terms; the cession is recorded; cover responds when claims arise.
For claims handling, facultative recoveries operate similarly to direct insurance claims but in mirror image. The cedant is the “policyholder” of the facultative cover; the reinsurer is the “insurer”. The claim flow is the same as an underlying insurance claim — notification, investigation, settlement.
The framework includes:
The follow-the-settlements doctrine applies. The reinsurer is bound by the cedant’s bona fide settlement of the underlying claim, provided the settlement is within the facultative’s terms.
A facultative recovery runs through:
The cedant notifies the reinsurer of the underlying claim, with the underlying claim documentation (coverage opinion, defence strategy, reserve setting).
The reinsurer reviews and acknowledges. The reinsurer may set its own reserve based on the information provided.
The cedant handles the substantive underlying claim. The reinsurer is kept informed through periodic updates.
When the underlying claim settles, the cedant pays the underlying policyholder and recovers the appropriate share from the reinsurer.
Facultative recoveries are claim-specific. Unlike treaty recoveries (which aggregate across multiple underlying claims), each facultative cession is handled individually.
Facultative business is used for:
The economics of facultative reinsurance differ from treaty. The reinsurance premium is risk-specific and may be much higher than equivalent treaty cover. The cedant pays a premium for the flexibility of bespoke cover.
For the reinsurer, facultative business produces underwriting precision (each risk is individually evaluated) but operational cost (each cession is handled separately). Facultative reinsurance is a specialist business with dedicated underwriting and claims teams.
Recovery disputes on facultative business are typically resolved through ARIAS arbitration or in court. The bespoke nature of facultative wording means coverage disputes are more common than in standardised treaty business.
“Pro-rata facultative” — the reinsurer takes a percentage of the underlying risk.
“XL facultative” — the reinsurer covers the excess above the cedant’s retention on the specific risk.
“Facultative obligatory” — a hybrid arrangement where the reinsurer is obliged to accept defined types of risks within an overall capacity.
“Coinsurance” facultative — multiple reinsurers participating in a single facultative cession.
“Inwards facultative” — from the reinsurer’s perspective, accepting facultative business.
A specialty insurer is writing a $50m PI risk for a Top 100 law firm. The insurer’s treaty capacity for solicitors PI is $20m. The remaining $30m needs to be placed facultative or retained.
The insurer’s broker places $30m of facultative reinsurance with two reinsurers — Reinsurer A taking $20m and Reinsurer B taking $10m. The facultative covers attach above the treaty layer; effectively a $30m xs $20m facultative tower.
A $35m claim is notified during the year. Recovery:
Total facultative recovery $15m. Combined with treaty recovery, the cedant’s net retained loss is its standard treaty retention plus any uninsured element.
The facultative reinsurers had been kept informed of the claim throughout. The recovery is processed within 30 days of the cedant’s settlement payment to the law firm.
The cedant’s facultative recovery improves the underwriting result on the policy substantially. The reinsurers’ losses are processed through their own retrocession arrangements.
By Matt Bartlett, Director, on 2026-06-11. Next review: 2026-12-11.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-11. Apex Insurance Brokers Limited, FCA FRN 724952, Companies House 07014570. Not regulated advice — consult your broker on your specific position.
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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