Nessim Mezrahi

In a recent post, I reviewed the number of first half 2023 securities class action lawsuit filings. In the following guest post, Nessim Mezrahi, co-founder and CEO at SAR LLC, analyses the potential financial exposure associated with the securities suit filings from the year’s first six months, as well as the implications of the filings for the D&O insurance industry. Nessim’s article first was published in the form of an SAR press release (here). I would like to thank Nessim for allowing me to publish his article on this site. I welcome guest post submissions from responsible authors on topics of interest to this site’s readers. Please contact me directly if you would like to submit a guest post. Here is Nessim’s article.


Our data and analyses indicate that in 2023, despite an unremarkable increase in filing frequency of private Rule 10b-5 securities fraud suits relative to the second half of 2022 – securities class action (“SCA”) exposure and implied loss severity almost tripled.  Moreover, the difference in magnitude of fraud-on-the-market settlements during the salient period – tripled.  In a nutshell, issuers are facing materially greater litigation exposure per Rule 10b-5 claim while carriers are experiencing notable materialization of loss severity due to the increase in magnitude of recently approved settlements.

SCA Exposure in 2023 Almost Triples the Amount Exhibited During Second Half of 2022

The exposure of U.S.-listed companies to SCA lawsuits that allege violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5 promulgated thereunder, amounts to $321 billion during the first half of 2023, an increase of 176% relative to the second half of 2022.[1]

During the first half of 2023, exposure of U.S. issuers amounts to $305 billion, an increase of approximately 181% relative to the second half of 2022.  Exposure for non-U.S. issuers that trade via American Depositary Receipts (“ADRs”) on U.S. exchanges amounts to $16 billion for the salient period, an increase of approximately 107%.[2]

Our data and analyses, derived from claim-specific event study analyses, indicate that considerably greater exposure now exists relative to the number of securities claims filed.  In other words, despite a modest increase in filing frequency, the increase in magnitude of potential loss severity is remarkable.  This dynamic is evidenced by the doubling of market capitalization losses that are claimed as shareholder losses per private Rule 10b-5 securities suits that have been filed against U.S. issuers in 2023 relative to the second half of 2022. 

The average SCA Rule 10b-5 exposure per filing exhibited a remarkable increase from $2 billion in alleged market capitalization losses during the latter half of 2022 to $4.2 billion during the first half of 2023.[3]  These estimates are based on single market trading session stock drop declines that correspond to alleged corrective disclosures claimed in first-filed SCA complaints, and whose daily residual returns exhibit statistical significance at the 95% confidence standard.

Materialization of SCA Loss Severity Tests D&O Rate Adequacy During a Soft Market

The resolution of recent private Rule 10b-5 securities fraud suits and shareholder derivative actions, including $1 billion in the Wells Fargo matter and $450 million in The Kraft Heinz Company, is a material catalyst that may likely lead to greater near-term erosion of public company D&O profitability during a soft rate environment.[4][5][6]

During the second half of 2022 we analyzed 26 private Rule 10b-5 SCA settlements yielding approximately $600 million in aggregate recompense to shareholders.  So far in 2023, 20 settlements already amount to over $2 billion, collectively.[7]  The loss materialization of high severity long-tail securities claims is exposing cracks in a potentially inadequate pricing scheme where ample capacity exists, but an untamed rate imbalance may strangle the bottom-line even after the top-line gains D&O carriers achieved during the hard market of 2019 – 2021. 

In the third quarter of 2022 we correctly indicated that “[t]he softening of the market is occurring simultaneously with the maturation of settlement losses on elevated securities claim inventories, which are driving both allocated and unallocated loss adjustment expenses for D&O carriers.”[8]  Our aggregate and claim-specific SCA loss severity data coupled with publicly available Schedule P data published by the National Association of Insurance Commissioners (NAIC) indicate that this market dynamic is very likely now in effect and strengthened by the magnitude of recent SCA settlements. 


While the near-term impact on stand-alone public company D&O profitability from the current soft market is still unknown, the growing magnitude of embedded SCA loss severity on inventory is not. 

According to AM Best, “D&O pricing at the beginning of 2023 appears to be flat on average, offering a reprieve for risk managers and brokers, but whether this relief will have staying power or whether prominent risk factors render this dramatic turnaround short-lived is unclear… With pricing changes below economic inflation, the pendulum may be swinging back to rate inadequacy.”[9]  Our data and analyses indicate that the first quarter of 2022 exhibited the second greatest Rule 10b-5 SCA exposure against U.S.-listed companies since the third quarter of 2018.[10]  New vintages of high severity SCAs filed in 2023 are contributing a notable amount of potential loss severity to the cumulative quantum already on inventory. 

The impact of double the exposure per fraud-on-the-market lawsuit, plus a remarkable increase in the magnitude of settlements during the first half of the year relative to the preceding one, may prompt carriers to drive underwriting rigor of certain D&O programs that have exhibited a greater number of adverse corporate events and thereby a higher probability of facing a securities class action.


Nessim Mezrahi is co-founder and CEO of SAR LLC, a securities class action data analytics software company.

[1] SAR SCA Rule 10b-5 Exposure Report 2Q 2023, SAR, July 10, 2023.

[2] Id.

[3] SAR SCA Database as of June 30, 2023.

[4] “Wells Fargo Agrees to Pay Shareholders $1 Billion to Settle Class-Action Suit,” Ben Eisen, The Wall Street Journal, May 15, 2023.

[5] “Kraft Heinz Securities Litigation Settles for $450 million,” Kevin LaCroix, The D&O Diary, May 9, 2023.

[6] “W. R. Berkley Corporation CEO Says Insurer Isn’t Going to Chase D&O Market ‘Down the Drain’,” Chad Hemenway, Insurance Journal, April 24, 2023.

[7] ISS Securities Class Action Services Settlement Data

[8] “D&O Insurer Challenges Amid Market, Economic Turbulence,” Law360, Nessim Mezrahi and Stephen J. Sigrist, October 11, 2022.

[9] “AM Best Special Report: “US D&O: Increased Capacity, Declining Demand, Lead to Softer Pricing,” AM Best, May 16, 2023.

[10] SAR SCA Rule 10b-5 Exposure Report 2Q 2023, SAR, April 10, 2023.