Aon Says Failures May Increase Premiums for Space Vehicles

March 21, 2008

The failures of the Sea Launch rocket carrying the NSS-8 satellite, the Proton carrying JCSat 11 and the recent failure of the Proton rocket carrying the AMC-14 satellite, could cause space insurers to increase premiums by up to 30 percent, according to the latest Aon Space Market Review 2007.

Aon describes the current situation as a “pivotal time for both the insurance market and operators after several years of reducing premiums.” The 2007 space insurance market, worth approximately $660 million in launch and in-orbit premium, saw the arrival of several new insurers, Aon notes, “which led to abundant capacity and falling premiums.

These “new entrants included: Atrium in London, Asia Capital Re in Singapore, AXA Corporate Solutions in Paris, Elseco in Dubai, Glacier Re in Zurich and Korea Re in Seoul.”

However, “the market was then sent into a state of flux in December when, on top of the launch failures, the Rascom 1 satellite suffered a helium leak resulting in its journey to final orbit with a heavily reduced lifetime and a potential claim of $256 million to its insurers. In total, claims are estimated to reach $835 million for 2007, prompting insurers to re-assess their premium rating and income targets for 2008.”

Peter Elson, senior managing director of Aon Space, commented: “Competition will inevitably exert downward pressure on rates but at present it’s a battle of wills between insurers’ perceived need to charge more in response to increased claims versus the laws of supply and demand. Due to high capacity, competition will be rife on attractive business and where the sums insured are low. Conversely, for less proven technology or systems with reliability concerns – especially when combined with a need for high levels of insurance – the market will prove stickier in pursuing its price targets. We’re therefore likely to see more differentiation in pricing not only between risks but also amongst insurers for any given risk.

“To keep rates competitive going forward, operators will need to demonstrate their quality and reliability while insurers will be placing extra emphasis on good track records and commitment to quality control.”

Aon also noted that “up until 14 March, 2008 had been extremely quiet for insurers with a number of brokers holding off placements in the hope of improved market conditions. However, as the broker was preparing its report, “the risk of this strategy was again highlighted by the latest failure of the Proton M Briz M rocket upper stage and possible loss of the AMC14 satellite on-board,” said the article. “Deposited in an unusable orbit, analysis is now underway to determine whether AMC14 has enough fuel to make its own way to its intended orbital location, albeit with a reduced operating life. Insured for $192 million, and coming hard on the heals of the 2007 losses, insurers will undoubtedly feel the need to stiffen their resolve for premium rate increases where they can be achieved.”

Source: Aon –

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