On-Orbit Failures Keep Chinese Insurers in the Red

VENICE, Italy — China’s fast-developing space insurance industry has struggled to make a profit in the past two years because of in-orbit failures of two telecommunications satellites using China’s new DFH-4 satellite design, with insurance claims eating into the profit generated by the recent failure-free performance of China’s Long March rocket, Chinese insurance officials said April 2.

Officials said 15 or 16 Chinese Long March rockets are expected to be launched in 2009, several of them insured, with commercial launches including the Palapa-D commercial telecommunications satellite for Indosat of Indonesia.

Addressing the 15th International Space Insurance Conference here, organized by Pagnanelli Risk Solutions, Chinese insurance officials said their industry is increasing in size with
China
‘s space sector and is nearing a point where it will not need support from non-Chinese insurance underwriters for small- and midsize space missions.

Chinese insurance underwriters have been among the strongest backers of the Chinese Long March vehicle, whose multiple variants have posted a record of 73 consecutive successes since 1996, according to Shu Lu, head of the aviation and space division of PICC Ltd. of
Beijing
,
China
‘s largest insurance underwriter.

Shu
said the success of the Long March vehicle in recent years has helped PICC and other Chinese underwriters to develop a profitable business in recent years. In 2008, she said, Chinese space underwriters reported around $100 million in insurance premiums. PICC had an 83 percent share of that sum, according to Shu.

Because of the loss of the Nigcomsat-1 telecommunications satellite, built and launched by
China
for the Nigerian government, insurance claims exceeded premiums in 2008, Shu said. Nigcomsat-1 completed its in-orbit tests as scheduled but later on developed problems with its solar array drive mechanisms, the gear that orients solar panels toward the sun to power the satellite’s communications payload.
China
is now building a Nigcomsat replacement satellite.

Shu
said insurers also took a serious hit to their profitability in 2006-2007, when the Sinosat-2 satellite, owned by China Direct Broadcast Satellite Co. Ltd., failed when its solar panels failed to open fully. Nonetheless, China Direct Broadcast has three Sinosat satellites under construction, and all will be insured, Shu said.

The third DHF-4 platform launched so far is the Venezuelan VeneSat-1 satellite launched earlier this year. Shu said it is operating correctly, raising hopes that 2009 will see a return to profitability for China’s space underwriters. The third Chinese major commercial satellite export win for China is the Paksat satellite for the Pakistani government, which will also use the DFH-4 platform. It is scheduled for launch in 2011.

In addition to insuring Chinese satellites and rockets, PICC and other Chinese underwriters are taking positions in insurance packages assembled for Western satellite launches.

Ma Qimin, space program manager at insurance broker Jiangtai Insurance Broker Co. Ltd., said that since the Chinese government modified insurance regulations in 2004, some 19 Chinese property and casualty insurers have entered the space market. Ma said the maximum capacity provided by Chinese insurers for a single Chinese launch is around $80 million. The Chinese market can provide up to around $40 million to insure a given satellite’s operations in orbit after its first year.

Modern communications satellites typically cost at least $200 million to build, launch and insure, meaning
China
‘s underwriters must join with Japanese or Western underwriters to assemble full coverage for a commercial telecommunications satellite’s launch.

Ma said the Chinese government used to require Chinese satellite operators to use Chinese underwriters for at least part of their insurance coverage, but that since 2004 operators such as China Direct Broadcast have been given wider latitude in assembling insurance packages outside
China
. But Chinese regulations still require Chinese underwriters to be the leaders of any insurance consortium covering a Chinese mission. These underwriters then are free to re-insure the missions outside
China
, Shu said.

Shu
said one motivation to increase the pool of insurance coverage available in
China
is to avoid a scenario in which a large Chinese commercial satellite program is unable to secure coverage in
Europe
because of technology transfer restrictions. But that day is still some ways off.

U.S.
technology transfer regulations since 1999 have made it impossible for satellites with
U.S.
parts to be launched aboard Chinese rockets. These same rules have made it more difficult for
U.S.
insurers to participate in insuring Chinese launches insofar as the insurers would be unable to speak to the Chinese about technical issues if there was any chance that the discussions would increase
China
‘s launch technology expertise.

Shu
said Chinese underwriters are increasingly participating in insurance packages assembled for non-Chinese satellites and launches. For these non-Chinese telecommunications satellite launches, China’s insurers have about $25 million to invest per year, and about $10 million to invest annually in the insurance of satellites in orbit.