Burford benefits from pre-Jackson ATE rush and also develops ‘synthetic hybrid DBA’

Bogart: ATE has never really been recoverable or free in commercial litigation

The scale of the pre-Jackson panic came into sharp focus yesterday after litigation financier Burford Capital revealed that it sold more after-the-event (ATE) insurance in the first quarter of 2013 than it did in the whole of the previous two years combined.

The company has also developed a “synthetic hybrid DBA” that gets around continuing concerns over the efficacy of hybrid damages-based agreements.

Publishing its half-year results Burford said it wrote more than $150m (£96m) in new business exposure in the first three months of 2013.

“Because of the conditional and deferred nature of our litigation expenses insurance products, it is too soon to tell how much that potential exposure will convert into actual premiums, which will turn into income for the group over the next few years as cases settle, but it seems clear that the former Firstassist will exceed our expectations and that we have a valuable annuity in hand.”

Of the ATE that matured during the first half of 2013, Burford raked in $10m in income and

$6m in profit before tax. It also reported $10m in income from its third-party funding, and profits of $5.4m, with an overall profit after tax of $8.3m, up 74% on the same period last year.

Burford chief executive Chris Bogart said that unlike some other ATE insurers, Burford had not turned away any customers in the run-up to implementation of the Jackson reforms,

During that period Burford “de-emphasised” litigation funding, but its report to shareholders said it is now “proceeding nicely” in the UK, “with strong demand for capital and some early success”, with the first resolution of a UK funding matter recently achieving a return of more than 100% in less than a year.

However, Mr Bogart declined to specify how many of the 29 live investments it currently has (with a commitment of $266m) relate to UK litigation.

Burford also completed a “law firm financing transaction”, which it described as a “market innovation”. This involves providing a law firm with financing across its litigation practice or a specific pool of cases so that it can afford to take the cases on. It is looking to do this with both ATE insurance and litigation funding, although Mr Bogart said the company will still look at individual cases as well.

The report said: “It is too early to tell what the real impact of the Jackson reforms will be on UK litigation generally, let alone litigation finance and insurance. The court system is still dealing with the enormous bulge of pre-Jackson filings while the Jackson era remains uncertain.

“Our very early experience is consistent with our prior assessment – that there remains demand for insurance coverage in larger commercial matters and that the demand for various financing products has increased. However, more time is needed for the new reality to come into sharper focus.”

Burford has stopped writing lower-value ATE since April – leading to some job losses – and Mr Bogart said the end of recoverability would make little difference in commercial cases. With most settling for a global amount, rather than including a specific amount for the ATE premium, he argued that “ATE has never really been recoverable or free except in the rare cases that go to trial”.

There is longstanding concern over whether the DBA rules allow ‘hybrid’ agreements where the solicitor is paid partly by the hour and partly on a percentage of damages, leading to no take-up of the new arrangements.

Mr Bogart explained that Burford is enabling lawyers to work under full DBAs but lay off some of the risk to Burford, which he described as a “synthetic hybrid DBA”. This means, for example, that the law firm works purely on a percentage of the damages, but then agrees with Burford that it will pay the firm half of its fees, in return for half of the fee the firm receives under the DBA.

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