Directors’ and officers’ (D&O) insurance premiums need to rise strongly to restore profitability in areas exposed to securities class actions, according to a report by insurer XL Catlin and law firm Wotton + Kearney.

It says D&O ABC cover has been chronically underpriced since at least 2011, while the frequency of class actions is increasing as more plaintiff lawyers and litigation funders enter the space.

The analysis suggests last year’s ABC premium pool of about $210 million would need to increase by at least three times to establish a profitable market, assuming all other factors remain unchanged.

“Recent market developments would indicate most D&O insurers are now endeavouring to restore some semblance of profitability to their portfolios after years of market losses,” the report says.

Based on historical averages, total settlement values for last year are projected to be about $446 million, the highest annual total on record. Early indications for this year suggest the average frequency of class actions is continuing to trend upward, the report says.

The total value of securities class action settlements since 1999 is estimated to be about $1.58 billion.

The report – called Show Me The Money! – is the second in a series of three white papers on securities class actions and their impact on the D&O market.

The third paper will examine potential strategies to restore underwriting profitability.