Profile: As Premiums Decline, Broker Keeps up the Pressure

Roger Bathurst

Chief Executive Officer, International Space Brokers

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atellite insurance premiums have dropped by around 30 percent since 2005 as the relative lack of major launch or in-orbit failures has helped underwriter profit and led to a relaxation of policy terms.

Rates differ depending on the rocket and satellite design used, and




on the satellite owner’s past history. But on average, a satellite launch can be insured today for 11-12 percent of its appraised




value, a rate that includes its first year in orbit.

After that first year, an operator will pay 1.6-1.9 percent per year in premiums for full coverage – again, depending on the amount of coverage sought and the reliability record of the satellite hardware.

Roger Bathurst, chief executive of International Space Brokers, says the rate declines seen so far are insufficient. With new underwriting capacity entering the market, the supply of insurance coverage has increased, adding to the downward pressure on premiums. Bathurst says the most reliable satellite operators should be given price breaks commensurate with their in-orbit reliability records and with the number of satellites they need to insure.

Bathurst, who is used to having underwriters accuse him of minimizing their losses and exaggerating their profits, spoke with Space News staff writer Peter B. de Selding.

Insurance rates both for launches and satellites in orbit have dropped sharply in the past two to three






years. Is there more to come or is that about all we can expect?

I don’t think it’s finished. There is still some room in the market for a further reduction in rates. Some operators, such as Intelsat, continue not to insure their in-orbit fleet, apparently believing rates are not sufficiently attractive.

Are current rates still high enough to permit a profit for underwriters in the event of failures?

Our estimate is that in the past five years, underwriters have made a profit of about $1.8 billion, and $1.9 billion over six years if you include what is likely to be a $100 million profit in 2007. In the absence of some other failure, we think 2007 will end up with roughly $600 million in premiums, and $500 million in claims – a profitable year despite two major commercial launch failures. That’s great news for the industry, and leads me to conclude that there is still room for further reductions in premiums.

Is this due to an oversupply of insurance following the arrival of new underwriters who offer capacity while times are good but are likely to leave if there are failures – as happened in the late 1990s?

When I look at the new underwriters – Atrium, Elseco, Sciemus – I see that they have a bank of engineering strength that permits them to evaluate the market. These are professionals coming into the market.

Now that rates have come down, are we likely to see policies covering launch plus five years in orbit, as was the case a decade ago, rather than today’s typical










coverage limit of launch plus one year?

My understanding is that Swiss Re will now give some customers a launch-plus-five policy, and some other underwriters are hinting at doing something similar. It’s a market myth that the losses of the late 1990s were due to underwriters getting stuck in multi




year policies.

Satellite operators have said the number of exclusions written into on-orbit coverage policies










occasionally has been so great that it’s not worth purchasing insurance. Are insurers rethinking the number of exclusions they write into policies?

Underwriters got strict about exclusions out of concern that a problem on one satellite could propagate throughout the fleet of those satellites in orbit. But if you offer an insurance product that has too many exclusions, it causes customers to go away. I think now that we have gone a few years without seeing multiple failures of the same design, this will give underwriters more confidence.

A satellite operator now must show that 75 percent of a satellite’s capacity has been lost before being able to file a claim for total loss. Will this threshold move downward?

It’s certainly negotiable. The great thing about this market is that it tries to match the product to the buyer. The market has the ability to react to the particular needs of a customer. The CTL [constructive total loss] threshold is a starting point.

Do large satellite-fleet operators have an advantage when purchasing insurance










to the extent that they can benefit from volume discounts?

In general, yes, but there are a lot of exceptions to the rule.
Insuring each and every satellite for its value doesn’t make much sense. Some fleet operators retain risk as they seek insurance, and this should be reflected in better policy terms. The market has not given an adequate discount to retained risk.

At least one new underwriter, Sciemus of Britain, has said it would use technical analysis to judge what satellites to insure in orbit, and then take very large positions in the selected policies – perhaps even the entire coverage on its own. Is this a good thing?

It’s way too soon to say whether it’s better. When a few in-orbit losses arrive, we’ll see who had what share of the policies. But Sciemus is an example of new insurers entering the market with the ability to perform technical analysis. Sciemus seems to be writing quite a lot of business, which is terrific. And its business model continues to evolve.

In many past policies, an underwriter would agree to terms with an operator, but insist that if any other underwriter got better terms in the policy, then all underwriters would. But recently, underwriters have adopted vertical marketing, where each is bound by the rate it quotes, regardless of the rates others quote. Is this good for customers?

We at International Space Brokers are less enthusiastic about vertical marketing because we have had better luck corralling people toward the lowest quoted level. For example, if we get a spread of offers between 11 and 12.5 percent, we would start at 11 percent and try to work everyone else down to that level. That is our preferred route.

The Russian Proton-M rocket failed in September and was back in flight in October for a Russian government mission, with a commercial flight set for mid










November. Does such a quick return to flight pose problems from an insurance point of view?

No, the Proton vehicle has proved itself over a long period of time. It’s not like this is a brand-new rocket. The commercial customers who have selected that vehicle are among the most sophisticated in the business. International Launch Services [the company that markets




Proton launches] has been very forthcoming with the insurance community.

How would the global space insurance community react if the Chinese Long March rocket were allowed back into the commercial-launch market by the U.S. government, which forbids the launch of U.S. satellite components aboard Chinese vehicles?

The market would certainly favor an increase in the number of viable launch-service providers. As for the Long March vehicle, it is being insured right now for the commercial launches it conducts. The market is backing the vehicle, which has an excellent record in recent years. With commercial launch manifests being full, the Long March is a great addition to the global supply.

Do space-insurance brokers tally their market share compared to other brokers, and if so what’s your share?

We do keep track of that, and of course market share can be interpreted in many ways – premium volume, number of satellites or launches and so forth. I would hate to be judged on premium volume because it might mean I am not getting the lowest possible rates for my clients. But I think a fair assessment is that International Space Brokers has a market share of around 35 percent and is one of the two market leaders. Our share is about the same as that of Marsh.