Category: Claims handling · Reviewed by Al Jabbar, Broker · Specialist Risks · Last reviewed 2026-06-11
Recovery from reinsurers is the process by which a cedant insurer claims the agreed share of a loss under its reinsurance treaty or facultative cover — through quarterly bordereaux, individual cession statements or formal claim filings.
The reinsurance recovery is the cedant’s principal mechanism for converting gross loss into net loss for its own balance sheet. Where a reinsurance programme has been bought to absorb defined risk above the cedant’s retention, the recovery follows the loss through the treaty wording, the bordereaux process and the reinsurer’s claims-handling procedures.
For Solvency II reporting, recoverables from reinsurance are presented separately from gross technical provisions, with a credit-quality adjustment for the reinsurer’s risk of non-performance. Net technical provisions are calculated by deducting expected recoverables from gross.
The framework includes:
Key authorities:
For Solvency II, the PRA Rulebook governs the treatment of reinsurance recoverables, including the Adjustment for Expected Losses on Counterparty Default. PRA Supervisory Statements (SS1/15 and successors) provide expectations on reinsurance recoverables.
Recovery follows the structure of the reinsurance programme:
For quota share treaties, the cedant cedes a fixed percentage of each policy’s premium and claim. Bordereaux are produced quarterly listing the ceded business. The reinsurer pays its share of claims (subject to commission netting) as part of the regular settlement cycle.
For surplus treaties, only policies above the cedant’s retention are ceded. The accounting is otherwise similar to quota share.
For excess-of-loss treaties (XL), individual claims are notified to the reinsurer when they exceed defined cession thresholds. The cedant submits a claim notification with supporting documentation. The reinsurer reviews, queries if appropriate, and pays.
For facultative reinsurance, recoveries are claim-specific. The cedant notifies the reinsurer of the loss, provides documentation, and pursues payment.
The “follow the settlements” doctrine (Hill v M&G) provides that the reinsurer is bound by the cedant’s bona fide settlements of the underlying claim, provided the settlement falls within the reinsurance’s terms and is not influenced by an interest extraneous to the underlying claim. The doctrine is an important practical protection for cedants — without it, reinsurers could re-litigate every settlement.
The “follow the fortunes” doctrine (broader than “follow the settlements”) applies in some treaty wordings and binds the reinsurer to the cedant’s broader claims handling and coverage decisions. Its scope is contested and depends on the wording.
Reinsurance recoveries are subject to a credit-quality adjustment for Solvency II purposes. The cedant must hold capital against the risk that the reinsurer fails to pay. Where reinsurers are rated AA or better, the adjustment is small; for unrated or low-rated reinsurers, the adjustment is material.
Disputes about reinsurance recoveries are typically resolved through ARIAS arbitration. London is the principal seat for English-law reinsurance arbitrations.
“Aggregate” recoveries — XL treaties that aggregate losses across multiple cessions within a period, with the cedant recovering once the aggregate retention is exhausted.
“Event-based” recoveries — XL treaties that respond to single defined events (catastrophes, terror attacks), with the cedant recovering the event loss above its event retention.
“Loss occurrence” definitions — XL treaties have varying definitions of “event” or “loss occurrence” that drive aggregation between underlying claims for recovery purposes.
“Reinstatement” provisions — XL treaties with multiple cover years that can be reinstated for additional premium after a claim.
“Co-reinsurance” — multiple reinsurers participating in a treaty layer; each pays its share.
A specialty insurer with a £20m XL treaty (5xs5) faces a £14m PI claim above its retention of £5m. The cedant pays the £14m claim and notifies the reinsurer (with the supporting coverage opinion, claim documentation and settlement memo). The reinsurer’s claim is for the £9m excess (£14m – £5m retention).
The reinsurer reviews the documentation and queries the aggregation analysis (whether the claim is one or many under the underlying policy wording). After three months of discussion, the reinsurer confirms the cession and pays £9m. The cedant’s net loss on the claim is £5m (the retention). The reinsurance recovery improves the cedant’s combined ratio for the line by approximately 1.8 percentage points.
The reinsurer recovers part of its £9m loss through its own retrocession programme (a £15m retro treaty with two retrocessionaires). The retro recovery is approximately £4m, leaving the reinsurer’s net loss at £5m. The chain of recoveries flows through three layers of cession before the loss is finally absorbed.
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.
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