NEW YORK (Bloomberg) — Investors have little chance of extracting damage awards from executives and board members at firms that lost money betting on subprime mortgages, said the chief executive officer of XL Capital Ltd., which insures directors and officers against legal claims.

"It's very hard to pick out the management team that did something wrong to the level that the law requires," Michael McGavick said yesterday at a Goldman Sachs Group Inc. conference in New York. "Being collectively stupid is not a basis for a lawsuit."

US securities class action suits climbed to a four-year high in 2008 with almost half of the 210 claims related to the collapse of the sub-prime mortgage market, according to a report by Stanford Law School and Cornerstone Research. Investors are seeking to recoup losses from a crisis that contributed to more than $1.7 trillion in write-downs and credit losses worldwide.

XL is among insurers, including Ace Ltd. and Chubb Corp., that sell coverage for lawsuit costs tied to management errors or negligence. The Bermuda-based insurer and reinsurer said claims rose in its professional liability business in 2008 as the pace of lawsuits increased.

XL's share price has more than quadrupled this year and is the best performer in the 24-company KBW Insurance Index. The company closed at $17.74 yesterday after dropping 33 cents in New York Stock Exchange composite trading.

XL reported 45 claims related to Bernie Madoff's $65 billion Ponzi scheme and said it had three new subprime-related claims in the third quarter. The insurer said in October it has confidence in its reserve levels for claims.

"You also have this global economic downturn, which will give rise to greater failure and greater opportunity for losses as well, and I think that's still pretty early days in evaluating" losses, McGavick said.

Federal securities class actions fell to 87 claims in the first half of 2009, a 22 percent drop from the year-earlier period, Stanford and Cornerstone said in a separate statement.

"The market was much more volatile in the second half of 2008," John Gould, vice-president of Cornerstone research, said in the statement. "Moving forward, greater market stability may signal a reduced number of securities class action filings."

McGavick said the acquittals last month of two former Bear Stearns Cos. hedge-fund managers bode well for the industry, and similar defences will "for the most part hold ground".

Ralph Cioffi and Matthew Tannin were acquitted of six counts including conspiracy and fraud in the first trial stemming from a federal probe of the subprime crisis. The men were accused of misleading investors about the health of two hedge funds that later collapsed, erasing $1.6 billion of investor assets.

"You had at least some damning evidence," McGavick said. "And yet the defence was in essence, 'we were caught up in tsunami not of our own making, we didn't see it for what it was, we were more optimistic than that, but that's no crime'. And the jury agreed. That message, I think, is very positive and powerful for where this all goes."

The Bear Stearns hedge funds collapsed in 2007. Bear Stearns itself failed less than a year later and was bought by JPMorgan Chase & Co.