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Commercial Special Features

Legal Finance ABS for Institutional Investors: Market Securities Expands Offering

By Celso Filho |
April 9, 2026

Legal Finance ABS for Institutional Investors: Market Securities Expands Offering

The following article was contributed by Celso Filho, Global Head of Special Projects at Market Securities, and co-founder and CEO of Rachel AI.

Life insurers and other institutional investors face a structural allocation challenge: securing sufficient volumes of rated, long-duration, yield-bearing assets to match long-tail liabilities. Public investment-grade bond markets remain large, but they do not consistently provide the spread, structure, or customization required. As a result, insurers have steadily increased allocations to private placements, asset-backed securities, and other forms of private credit.

According to Milliman’s 2026 analysis of NAIC statutory filings, private bonds now account for approximately 46% of U.S. life insurers’ bond portfolios — up from 29% a decade ago — reflecting a sustained and accelerating shift toward alternative sources of yield and duration. The trend is sharpest among PE-owned life insurers, where structured securities account for approximately 49% of total bonds — underscoring how deeply the search for rated, yield-bearing paper has become embedded in the asset allocation strategies of the most capital-active players in the sector.

Market Securities is addressing that demand by bringing to market asset-backed securities backed by legal finance receivables, including pre-settlement plaintiff advances and receivables linked to contingent fee arrangements with law firms. These assets introduce a distinct return profile driven by legal case cash flows rather than traditional corporate credit cycles, and they can be structured into rated securitizations suitable for institutional portfolios.

The opportunity is crystallizing across three investor tiers — each approaching the asset class from a different angle, but converging on the same structure and, together, driving the institutionalization of legal finance.

  1. Insurers and other rated-mandate investors represent the largest pool of demand. Operating within strict capital and rating constraints, they allocate to investment-grade instruments at 125 to 200 basis points over Treasuries and can deploy hundreds of millions per transaction. Their participation defines the scale of the opportunity — and creates the demand for rated, structured exposure that legal finance ABS is uniquely positioned to meet.
  2. Private credit managers, sovereign wealth funds, and large family offices occupy the senior and mezzanine tranches, targeting enhanced yield with structural protections. Unlike insurers, these investors are not dependent on ratings and underwrite assets directly, focusing on risk-adjusted returns, structure, and downside protection. They provide the capital depth required to scale transactions and anchor issuance.
  3. Specialist legal finance investors sit in the junior and equity tranches, underwriting legal risk directly and targeting returns in excess of 25%. These investors take first-loss positions, pricing legal risk at the asset level — and for them, securitization offers a compelling strategic advantage: lower cost of capital and greater leverage availability than traditional fund formation, particularly relevant in today’s challenging fundraising environment.

These tiers are complementary rather than competitive. Rated investors bring scale and duration demand; private credit and sovereign capital provide flexible, non-rating-constrained liquidity; and specialist managers contribute underwriting expertise and first-loss alignment. Securitization is the architecture that aligns them — converting legal finance receivables into a format that institutional capital can size, rate, and deploy against.

Market Securities sees this convergence as structural rather than cyclical, and legal finance ABS as the mechanism through which it becomes permanent.

—

Celso Filho, CFA, CAIA is Global Head of Special Projects at Market Securities, based in the Dubai International Financial Centre (DIFC). He is also co-founder and CEO of Rachel AI, a London-incorporated litigation finance technology and analytics platform. Celso began his career as a lawyer, practising for seven years before transitioning into investment banking and specialty finance, with prior roles at Citigroup and Credit Suisse. He holds an MBA from INSEAD.

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Celso Filho

Celso Filho

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Commercial

ARAG UK Posts £244M Income in First Results Including DAS, But Integration Costs Keep It in the Red

ARAG has reported total UK income of £244 million for the 2025 financial year, its first set of results to include the former DAS UK business, though the cost of absorbing that acquisition kept the legal expenses insurer at a pre-tax loss.

As reported by Legal Futures, ARAG Legal Expenses Insurance Company recorded income of £216.7 million, up more than 50% on the £141.4 million DAS reported a year earlier following the integration of the ARAG plc business. Growth was driven in particular by the strength of ARAG's before-the-event portfolio, with commercial products singled out.

ARAG LEI posted a pre-tax loss of £4.1 million, narrowed from a £5.5 million loss in 2024. The company attributed the shortfall mainly to the continuing cost of integrating the former DAS UK operations and consolidating the businesses under one roof at Trinity Quay in central Bristol. The UK consolidated businesses, which include ARAG plc and ARAG Law, contributed £8.9 million net of reinsurance to the international ARAG Group.

ARAG SE acquired DAS UK in 2024. The combined UK operation now insures more than 10 million families and roughly two million businesses against unforeseen legal costs, and recently launched its Insuring Justice social impact report at the House of Commons.

ARAG UK chief executive David Haynes said the business now contributes more than €250 million in income to the international group, "making the UK business ARAG's most significant operation outside Germany." He said the company was continuing its strong performance into 2026. In May, the international ARAG Group reported income of €3.2 billion, ahead of the target it had set for 2030.

Commercial

Trucking Industry Tallies Four New State Funding Laws as Ohio’s Foreign-Investment Ban Takes Effect October 6

Four states have put new third-party litigation funding restrictions on the books this year, and the trucking industry that lobbied for several of them is already pressing for more.

As reported by Transport Topics, North Carolina went furthest. Governor Josh Stein signed the Prohibit Litigation Investments Act in June, making it illegal to provide litigation investments to a party or attorney in a civil action in the state. The ban took effect June 22 and applies to proceedings filed on or after that date, as well as to contracts entered into, renewed or amended afterward. Violations carry fines of up to $50,000 per offense, enforced by the attorney general.

Ohio's House Bill 105, signed by Governor Mike DeWine on July 7, takes effect October 6. It bars foreign governments, corporations and investors from participating in third-party litigation financing, prohibits funders from directing legal strategy or selecting counsel, and blocks plaintiffs and attorneys from sharing sealed or protected material with commercial funders. Funding agreements must disclose the amount advanced, the fees charged, how those fees accrue and the maximum a consumer could owe, and attorneys must provide agreements to the attorney general within 14 days of resolution.

Illinois House Bill 5487, signed August 7 and effective immediately, prohibits investors including private equity firms and hedge funds from interfering with the attorney-client relationship or controlling client records, and restricts fees tied to law firm revenue or profits. Mississippi's Transparency in Consumer Legal Funding Act took effect July 7, requiring funders to disclose to the attorney general the identity and country of incorporation of foreign entities with access to proprietary information.

Ohio Trucking Association president Tom Balzer called the legislation "a good step forward" and said further reforms are planned.

Commercial

Novarex Closes £16M Second Round at a Stated 20% Return, With a Third Round Planned at 16.5%

Novarex Capital Partners has closed a second financing round of £16 million, more than tripling the size of its opening £5 million raise and bringing total capital generated across the programme to £21 million.

As reported by Pulse 2.0, the London-based platform completed the round on terms providing investors a stated return of 20%. A further round is already planned, structured around a stated return of 16.5%, though Novarex has not disclosed its timing or terms. The firm also declined to name the participants in the £16 million round or detail its contractual structure.

The capital supports the working capital requirements of an unnamed law firm regulated by the Solicitors Regulation Authority that prepares eligible legal claims. Novarex said the underlying firm operates within applicable SRA standards, maintains professional indemnity insurance, and handles client money and case processes inside the regulatory framework. The firm has a pipeline of contracted work and focuses on claims meeting established eligibility criteria.

Novarex describes itself as a specialist introduction platform covering private credit, litigation finance and structured capital, connecting sophisticated investors with private-market opportunities built around defined transaction parameters. It closed its initial £5 million round in August.

The structure is a familiar one in the UK consumer claims market, where law firms preparing high volumes of cases face significant upfront costs long before any recovery arrives, and where outside capital has increasingly filled the working capital gap. It is also the model drawing regulatory attention, with the SRA consulting on new rules governing solicitors' involvement in litigation funding arrangements following a series of claims firm failures.