ATE insurers ‘desperate’, claims bullish Burford
A litigation funder has admitted its after-the-event insurance business is struggling despite the company posting record overall profits for 2015.
Burford Capital announced a 21% increase in profit before tax to £46.6m for the full year ending 31 December 2015.
The listed company told the London Stock Exchange it also increased turnover by 26% to more than £73m.
But income from the insurance business fell markedly, from around £17m in 2014 to £9m last year.
The company said there is ‘no question’ that insurance products remain in demand, but equally the idea of a ‘free lunch’, with premiums paid by defendants, has long since disappeared following the Jackson reforms.
The Burford financial statement said the company is ‘resolute’ it will not write insurance at a premium rate that is not sustainable.
‘What is happening today is that legacy insurance providers have seen, as we have, a decline in their business volumes post-Jackson,’ said the report.
‘Some of these providers do not have Burford’s diversified sources of income and thus they are desperate to write new insurance business, even if they do so at premium levels we consider uneconomic.’
Burford said it was unclear if this year’s decline in new business was a result of a contracting market or of it losing market share, but it was clear the ‘halycon pre-Jackson days’ are a thing of the past.
The company said it will operate its own law firm and take equity interests in other law firms, following its successful application for an alternative business structure licence. More details will be outlined later this year.
Burford stated it has almost £445m committed in 54 different litigation investments, with net return for concluded investments increasing from 60% in 2014 to 70% in 2015.
The report said the legal industry resembles a ‘slumbering giant that is now awakening’, and that attitudes to litigation funding continue to soften.
This was illustrated by the move away from single case litigation funding, which accounted for 100% of its business in 2009 but just 13% in 2015.
‘Law firms have not historically been significant users of outside capital,’ added the report. ‘That is changing, and we are in the vanguard of driving those changes – which represents opportunities for us to grow our diversified portfolio of capital investments in law.’