Filed Under:Agent Broker, E&S/Specialty Business

Number, Average Value of Securities Class-Action Settlements Fell in 2011

NU Online News Service, March 15, 1:59 p.m. EDT

The number of securities class-action settlements fell nearly 25 percent in 2011 compared to 2010, and the total dollar value of settlements fell by 58 percent to $1.4 billion, according to Cornerstone Research.

Cornerstone Research, in its “Securities Class Action Settlements: 2011 Review and Analysis” report, says the decline in the number of settlements is one of the largest year-over-year declines, matching the near-25 percent decline in 2006 relative to 2005. 

In total, 2011 saw 65 securities class-action settlements. The average reported settlement decreased to $21 million in 2011 from $36.3 million in 2010. Cornerstone Research says this decline is due in part to a decline in very large settlements.

“For the fourth consecutive year, no single securities class-action settlement exceeded $1 billion,” the report notes, adding that the average amount for “mega-settlements”--defined as settlements of $100 million or more--declined by more than 27 percent in 2011 compared to 2010.

“In fact,” states the report, “mega-settlements accounted for only 40 percent of total settlement dollars in 2011--the lowest proportion since 2001.” Over the past five years, the report notes, mega-settlements have accounted for an average of 71 percent of settlement dollars.

Cornerstone Research says nearly 80 percent of settlements with identifiable contributions from Directors and Officers insurance proceeds were funded 100 percent by such policies, compared to 60 percent of settlements in 2010.

“This apparent increase in the proportion of settlement amounts covered by D&O insurance may be a function of the lower overall settlement amounts in 2011 and an increase in the level of D&O coverage carried by firms,” the report explains.

Looking forward, Cornerstone Research says it is “difficult to project future settlement trends,” but notes that a $725 million partial settlement approved in February 2012 an an American International Group, Inc. securities litigation matter indicates that 2012 may see a return to more typical securities class-action levels.

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