Insurance Unit Adds $15 Million To Launch, Satellite Coverage

PARIS —


A division of insurance giant Allianz Group that specializes in underwriting space risks has created a subsidiary in Dubai that will add $15 million to the global pool available to insure satellites and launches.

SpaceCo of Paris, which was established in 2003 and currently provides about 9 percent of the global underwriting capacity available for any given satellite or launch, said its Dubai-based unit, called elseco limited, will be run as a separate company but will effectively add to the weight of SpaceCo.

Pierre-Eric Lys, managing director of SpaceCo, will be chairman of elseco. He said that from its base in the United Arab Emirates, elseco will specialize in covering policies written for operators in the Middle East and Asia. The elseco unit in mid-June received a license from the Dubai Financial Services Authority to operate as part of the Dubai International Financial Center.

SpaceCo, which operates out of the Allianz-owned AGF insurances offices here, currently provides $45 million to $50 million per year in usable underwriting capacity, typically spread over many risks that are shared with other underwriters. Total underwriting capacity worldwide is about $500 million, meaning that is the maximum sum that likely can be assembled to cover a given satellite or launch.

To that sum now will be added elseco’s $15 million.

“We have seen in the space industry that certain markets can emerge quickly and we want to be ready for that,” Lys said June 15, in advance of the announcement of the formation of elseco. “We have seen opportunities arise in Nigeria and in the Middle East and in India.”

One insurance broker who regularly works with SpaceCo said the Dubai subsidiary’s creation is an example of the change in atmosphere in the space




insurance industry in the past three years. After a contraction in the number of space underwriters and in the available capacity following losses in the late 1990s and early in this decade, a string of failure-free satellite launches has returned the industry to profitability.

Insurance premiums have fallen from 20 percent or more to cover a large telecommunications satellite’s launch and first year in orbit, to less than 14 percent currently, depending on the record of the satellite operator, the satellite’s design and the rocket being used.

The annual costs of insuring a satellite in orbit after its first year has fallen, too. Premiums currently are often less than 1.8 percent of the insured value, compared to 2.6-2.8 percent just three years ago.

Insurance underwriters have begun to express concerns that these rates are approaching levels at which they will not be able to operate profitably in the event of a string of failures, something that is not uncommon in the history of the




industry.

Lys agreed, but cautioned that premiums now vary greatly depending on the satellite operator’s history and on the amount of insurance being sought, making it difficult to draw conclusions from premium trends. Several large fleet operators, including the two largest – Intelsat and SES – use their in-orbit fleet flexibility to self-insure for part of the value of their new satellites. As a general rule, the lower the value of the insurance coverage being sought, the lower the premium.

Lys said the trend toward self-insurance is not necessarily bad news for companies like SpaceCo and elseco because satellite operators need advice on how to structure their own coverage. “Self insurance does not mean you no longer need to deal with insurers,” Lys said. “Part of our business is now to accompany these operators as they create their own, captive insurance capability for part of their fleet.”

SpaceCo has assumed a role that appears to stretch the conventional definition of a space insurance underwriter to include services usually associated with insurance brokers and with classic property and casualty coverage. For example, the company has insured satellites against damage during their manufacture and during their transfer to the launch site. Historically, a space insurance underwriter has had a role limited to the satellite’s risks at the launch site and in orbit.