Category: Claims handling · Reviewed by Simon Temme, Account Executive · Last reviewed 2026-06-11
Treaty recoveries are the amounts a cedant insurer claims from its reinsurance treaty for losses ceded under the treaty — typically aggregating across the cedant’s portfolio of business covered by the treaty.
Treaty recoveries are the operational expression of treaty reinsurance. A cedant that has bought treaty cover from a reinsurer transfers part of its claims liability under the treaty’s terms. When the claims actually occur and are paid, the cedant calculates the cession and seeks payment from the reinsurer.
Different treaty types produce different recovery mechanics. Quota share treaties recover a fixed percentage of every claim. Surplus treaties recover the surplus above the cedant’s retention on each underlying policy. Excess-of-loss treaties recover claims above the cedant’s per-event or per-policy retention.
The framework includes:
The “follow the settlements” doctrine (Hill v M&G [1996] 1 WLR 1239) is foundational: a cedant that has properly notified and settled in good faith binds the reinsurer to follow the settlement, provided the settlement is within the reinsurance’s terms.
For quota share treaties:
The cession is recorded at policy inception. The reinsurer’s share of each premium is paid through the bordereau cycle. When claims occur, the reinsurer’s share is paid in the same bordereau cycle.
The recovery is therefore continuous and aggregate rather than claim-by-claim. The cedant’s net retained loss on each underlying claim is its quota share of the gross loss.
For surplus treaties:
The cedant retains the first defined amount on each underlying policy; the surplus is ceded to the treaty. The recovery operates per policy with reference to the cedant’s per-policy retention.
For excess-of-loss treaties:
The cedant retains the first amount per event or per policy; the excess up to the layer limit is recovered from the treaty. The recovery is claim-by-claim (or event-by-event) with reference to the retention.
Catastrophe XL treaties respond to single events (windstorms, earthquakes, terror attacks). The recovery is event-aggregated across multiple underlying claims.
Treaty recoveries can be very substantial. A major hurricane event affecting a US-exposed UK insurer’s portfolio may generate $200m+ in treaty recoveries across multiple treaties in the cedant’s programme. The recoveries flow through the reinsurance accounting in defined cycles.
Reinstatement provisions in XL treaties allow the cedant to reinstate the layer after exhaustion by paying an additional premium. The reinstatement enables continued cover for the period.
For Solvency II purposes, the recoverable estimate must be net of expected counterparty default — the reinsurer’s risk of not paying. Higher-rated reinsurers attract smaller defaults; unrated or low-rated reinsurers attract larger defaults.
Disputes about treaty recoveries are typically resolved through ARIAS arbitration. London is the principal seat. The disputes commonly relate to aggregation (whether multiple underlying claims aggregate as one event), allocation (which year’s treaty responds to which underlying loss), and the application of follow-the-settlements (whether the cedant’s underlying handling was in good faith and within the treaty’s scope).
“Pro-rata treaty recoveries” — recoveries under quota share or surplus treaties calculated as the reinsurer’s share of underlying losses.
“XL treaty recoveries” — recoveries under excess-of-loss treaties above the cedant’s retention.
“Cat XL treaty recoveries” — event-aggregated recoveries under catastrophe XL programmes.
“Aggregate XL treaty recoveries” — recoveries triggered by aggregate losses across a period.
“Stop-loss treaty recoveries” — recoveries where the cedant’s underwriting result falls below a defined level.
A specialty insurer has a $50m XL treaty programme structured as:
A major industrial accident produces $42m of claims under various underlying policies, aggregating as a single event under the treaty’s definition.
Recovery:
Total recoveries: $37m. Cedant’s net retained loss: $5m.
Reinstatement of Layer 1 and Layer 2 is engaged; the cedant pays reinstatement premium of approximately $1.8m to restore the cover for the rest of the period.
The recovery improves the cedant’s combined ratio for the year by approximately 14 percentage points relative to a no-recovery scenario.
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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