Lloyd's capital briefing flags reinsurance dispute risk as an area where syndicates should evidence sufficient allowance. The actuarial point is important: a ceded recovery is not equivalent to cash at the moment a gross loss is recognised. Timing, wording, aggregation, sanctions, allocation and counterparty behaviour can all change usable capital.
Gross, ceded and net are different views
Capital analysis should show the gross event loss, expected ceded recovery, stressed recovery and timing of cash. The gap between those views is not merely a finance reconciliation. It can affect liquidity, collateral, solvency coverage and the ability to write new business.
Model the dispute pathway
A practical framework maps the reasons a recovery could be challenged: occurrence definition, hours clause, aggregation, excluded peril, late notification, sanctions, claims cooperation and data quality. Each pathway should have an evidence score and an estimated delay or haircut. The result need not pretend to be a precise probability; it must be transparent enough for governance.
Validation tests
Validation should challenge whether historical recoveries are a suitable guide where the current event has different legal, geopolitical or market features. Sensitivity testing can show how capital changes if recoveries arrive one quarter later, are partially disputed or are replaced by collateral. Reverse stress testing identifies the dispute combination that consumes the usable buffer.
At Quantica Risk Modelling, I treat reinsurance recoverability as a risk factor with an owner and trigger, not as an automatic offset. Source: Lloyd's Capital Briefing 2026.