Space Insurers Brace for First Money-losing Year Since 2007
DUBAI, United Arab Emirates — Space insurance underwriters reported $775 million in premiums in 2013 but may end up paying as much as $806 million in claims, making it the first money-losing year since 2007 and the second since 2001, insurers said.
With premiums continuing to fall even as the average amount of coverage on insured satellites continues to rise, several veteran underwrites are reducing their participation in the business out of concern that premium rates are insufficient to cover a big loss.
Insurers are unlikely to know until July whether 2013 will end up as profitable for them. It was the year of the largest-ever insurance claim, $406.2 million for the loss of the27 telecommunications satellite — carrying a UHF payload intended for government customers — in a Sea Launch rocket failure.
The big question mark remains the four O3b Ka-band broadband satellites launched in 2013 with a power defect that has not degraded their performance but is likely to reduce their operating lives.
Depending on when these satellites fail, and in particular whether additional O3b satellites have been launched by then, insurers could be faced with a claim of $318 million, insurance officials said here during the World Space Risk Forum. The next four O3b satellites are scheduled for launch in early July, with the third batch of four scheduled for launch in early 2015.
In addition to featuring the largest-ever insurance claim for a single satellite, 2013 saw the highest-ever insurance policy written for a satellite — some $492 million for the Yahsat 1A civil/military satellite owned by Al Yah Satellite Co. of Abu Dhabi, United Arab Emirates.
The rocket most responsible for insurance premium payments today is Europe’s Ariane 5 heavy-lift vehicle, which typically carries two telecommunications satellites at a time into orbit.
Depending on the customer combinations, a single Ariane 5 launch could be carrying more than $700 million of insurance coverage, meaning a launch failure could wipe out nearly a full year of insurance premiums.
Despite these risks, money continues to flow into the satellite insurance market, driving premiums down.
In a May 13 presentation, Christopher T.W. Kunstadter, senior vice president of XL Insurance of New York, said insurance premiums for the launch and first year’s in-orbit operations of a satellite have dropped from a high of around 20 percent a decade ago to as low as 5 percent today.
To insure a satellite after its first year in orbit now costs as little as 0.5 percent, depending on the manufacturer and model.
Despite the low rates, Kunstadter said, insurance underwriters and, increasingly, so-called managing general agents that represent underwriters and are paid to place risks continue to enter the market, lured by its recent profitability.
“There is lots of money coming in, and there’s lots of capacity,” Kunstadter said. “The price of entry is very low, and it is not too much trouble to set up a company.”
The business is global, but more than two-thirds of the total pool of space insurance capacity comes from European underwriters, especially in France and Britain.
Kurt Karl, chief economist at underwriter Swiss Re, said the currently soft space insurance market “would harden quickly in the event of a significant launch failure. A major loss likely would lead to [premium] price increases. Conditions for space are a little stressful at this point.”
Jan Schmidt of Swiss Re said the company is “reducing our overall exposure to the space line” because of the fall in premiums. Kunstadter did not detail XL’s policy, but left the clear impression that the company would not be providing much in-orbit coverage with rates now at less than 1 percent.
Another underwriter, speaking privately, agreed. “If you take out a big line for in-orbit coverage and the market prices the premium at one percent or less, you either accept that or you stay out of the market,” this underwriter said. “So there is pressure to stay in the market, but we are cutting back on in-orbit coverage.”
Antoine Bavandi of underwriter Argo International, part of the Argo Group, said that while the number of satellite failures in a given year has dropped in the past 25 years, the average claim per loss has gone up.
In the mid-1990s, Bavandi said, the average claim was $38 million. By 2002, the average had risen to $54 million per claim, climbing to $78 million in 2006. For 2011, the average claim was $106 million. The increased average claim filing has followed the growth in satellite size and payload complexity.
As the satellite industry has spread, with more nations seeking satellite telecommunications capacity, the manufacturing industry has dispersed as well.
Kunstadter said that in the 10 years ending in 2010, satellite builders from outside North America and Europe — mainly Russia, China, India and Japan — accounted for just 13 percent of the insured telecommunications satellites launched into geostationary orbit.
Between 2011 and 2013, he said, the Russian and Asian builders’ share of the market was 27 percent. “It shows a willingness of satellite operators to go now to manufacturers they would not have gone to previously,” Kunstadter said. “And most of these satellites have been very successful.”
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