After paying a claim of £150,000, an insurer recovers £160,000 under their subrogation rights. Who is entitled to the balance?

In this scenario, the insurer paid a claim of £150,000 to the insured and subsequently recovered £160,000 from a third party under their subrogation rights. Subrogation allows insurers to step into the shoes of the insured after compensating them for a loss, enabling the insurer to pursue recovery from the party responsible for that loss.

Since the insurer initially compensated the insured for their claim, the amount that the insurer recovered in excess of what they paid—the £10,000 balance (which is the £160,000 recovered minus the £150,000 paid out)—rightfully belongs to the insurer. This is because the recovery is viewed as a reimbursement for the amount the insurer initially covered, and any additional amount recovered beyond that is retained by the insurer. Thus, the correct answer reflects the principle of subrogation and the financial arrangements that govern the respective rights of both parties after a claim has been settled.

The insured does not receive any part of the recovery exceeding what was paid out, as they have already been made whole through the claim payment. The third party does not benefit from this recovery, as they are the liable party. Finally, sharing the recovery between the insured and the insurer does not align with the principle of