Legal expenses insurer ARAG says it is expecting a major boost from this month’s landmark costs case which will send profits back towards seven figures.

The after-the-event specialist posted profit before tax for 2018 of just £600,000, compared to reported profits of £2.35m the previous year.

The firm says profits in 2018 were ahead of those forecast, and would have been ‘substantially higher’ but for outstanding ATE premiums not paid in advance of a judgment in West and Demouilpied. The Court of Appeal last week ruled that block-rated insurance premiums – where ARAG had provided cover for a batch of cases not based on the specific amounts involved in each one – could be recovered. This was, the court decided, because a comparison between the premium and the value of the claim was not a reliable measure.

It is understood that NHS defendants had withheld paying premiums in potentially thousands of cases, with ATE insurers now expected to recover millions in unpaid costs.

Tony Buss, managing director of ARAG, said the business had experienced ‘significant challenges’ – including from new legislation restricting recovery of costs and ‘intense competition from less financially stable operators’.

‘I am very pleased that we have been able to produce such a positive result in particularly difficult trading conditions for legal expenses insurers,’ said Buss. ‘In recent years, we have seen numerous providers leave the market, especially from the ATE sector, but ARAG remains strong and continues on our path of stable growth,’

Overall, the company’s gross written premium under management grew by 8.6% to £37.8m, while BTE legal expenses and assistance business grew by 14.2%.