SPACE THE FINAL FRONTIER
JUNE 2015
2
PART 1: SPACE & SATELLITE
INDUSTRY
What is a Satellite?
• Relay station in orbit capable of receiving, amplifying and re-transmitting communications signals
– “Bent Pipe”
– “Mirror”
4
Why do we need Satellites?
• Access:
Earth’s
One Geostationary Satellite can
Surface
• Cost:
Money, Time, Energy
• Versatility:
Voice, Video, Data etc
• Info. Transfer Rate:
Bandwidth, Bit-rate
view up to 42% of the
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Satellite Applications
6
Getting into Space
• Launch Vehicle required
• Early vehicles missile technology based
• Today – specifically designed commercial vehicles
7
Major Commercial Launch Vehicle Manufacturers
• Ariane:
Arianespace
• Proton:
Khrunichev
• Falcon:
Space X
• Delta:
Boeing
• Sea Launch:
Boeing, NPO Yushnoye, Energia
• Atlas:
Lockheed Martin
• Long March:
China Great Wall Industry Corp.
• Various small
launchers:
Pegasus, Taurus, Cosmos,
Rokot, Start, Athena, H, etc.
8
Where in Space? - Geostationary Satellites
• Unique orbit where a satellite has a 24 hour period of earth rotation
• Distance of 22,282 miles (or 36,000km)
• Associated speed of the satellite is 6,879 miles per hour
9
Low & Medium Earth Orbit Satellites
• Low Earth Orbit (LEO)
– Orbiting Altitudes 500 - 2,000 km
• Medium Earth Orbit (MEO)
– Orbiting Altitudes 5,000 - 15,000 km
10
“GEO” versus “LEO”
• Advantages of GEO
– Coverage area
– Inter-satellite links usually
unnecessary
– Stationary/cheap Earth station
antennas
– Many standard designs already in
use
• Disadvantages of GEO
– Requires higher power, and
therefore higher bandwidth
– Expensive to build, launch and
replace
– Difficult to repair or replace
– Longer lifetimes mean new
technology is not easily added
– Cannot cover latitudes greater than
+/- 77degs.
11
Major Commercial Satellite Manufacturers
• Boeing (previously Hughes)
• Loral
• Lockheed Martin
• Airbus D&S (previously EADS/Astrium)
• Alcatel (previously Aerospatiale)
• Various Russian Companies, e.g.
– Energia
– ISS RESHETNEV (NPO PM)
• CAST (China)
12
State of the Space Industry
• The good news
– New applications, technologies, operators, manufacturers, launch vehicles
– Infrastructure build-out continues
– Privatization is working
– Satellite orders remain stable
– Small satellites increasingly popular
– Commercial human spaceflight on the horizon
• The not-so-good news
– Government support waning
– Some new markets slow to develop
– Satellite and launch delays affect income
– New technologies pose challenges
13
Space Activity Metrics
• 92 launches to orbit in 2014
– 5 launches failed (5.4%) + one or more anomalous launches
– 39 launches were insured (42%) – 2 insured launch failures
• 302 satellites on the 92 launches
– 88 of the 209 satellites were cubesats (42%)
– 52 of the 121 non-cubesat satellites were insured (43%)
• 1,619 active satellites in all orbits
– Most are civil, scientific, research or national security
– 212 satellites are insured (18%)
Active Satellites In Orbit
Commercial Communications
Remote Sensing
Navigation
1,619 total
Meteorological
Scientific
Research & Development
National Security
PART 2: INSURANCE
FUNDAMENTALS
Why insure Satellite Risks?
• Commercial versus Government
• Investment Costs: Satellite/Launch/Insurance
• Role of banks and project financial backers
• Special Characteristics
– Technology
– High risk of failure for satellite/project/business
– Inaccessibility in orbit
– Replacement time
• International and National Law/Convention (Liability Risks)
17
Who buys satellite insurance?
• Satellite manufacturers & launch service providers e.g. Thales, Astrium, Lockheed Martin,
Arianespace
• Satellite buyers/ operators e.g. ARABSAT, Inmarsat, Intelsat, SES Global
• Satellite users, banks, investors e.g. BSkyB, Canal+, HSBC
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Where does the Risk of Loss Fall?
• Normal context
– Formal contractual agreements
– First party basis/subrogation waivers
• Current practice
– Delivery on the ground
– Delivery in orbit
– Launch risk guarantee
– Launch service provider/launching state (liabilities)
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Traditional Satellite Insurance Products
• Cost effective coverage is available for:
– Physical loss or damage to assets during:
– Construction/pre-Launch
– Launch and commissioning
– In-Orbit Life
– Third Party Liability Coverage
– Consequential Losses including delays, loss of revenue, contractual incentives and warranties
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Rough Guide to Premium Rates
• Pre-launch (transit etc): 0.25% to 1%
• Launch + 12 Months (commissioning/ early orbit): 5.50% to 16%+
• In-orbit: 0.40% to 2.25% per annum (health dependant)
• Third party liability:
– launch 0.10%
– in-orbit 0.05% per annum
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PART 3: THE SATELLITE
INSURANCE MARKET
2014 Market Summary
• Following the notification of the Amazonas 4A anomaly along with the Express AM4R total loss the market looked
set for what looked like another unprofitable year following 2013
• Greater differentiation was seen on risks from insurers:
– Rates on proven missions with manageable sums insured continued to decline amid fierce competition
from insurers
– Less favoured risk profiles did see premium rate increases
• The majority of the 2014 launches have already been placed at premium rates which are on average significantly
higher then the 2014 launch placement rates
• Even with the tough start to the year the net premium income was approximately USD800m, generating a
estimated profit of around USD200m
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2015 Market Summary to date
• 2015 saw little activity in the early apart of the year and with only two significant insured launches occurring during
the first quarter.
• April saw a flurry of activity with 2 major launches within 3 days.
– Thor 7 on board a Ariane 5
– TURKMENALEM 52E/MONACOSAT on board a Falcon 9
• Both launch insurance and in-orbit insurance working underwriting capacities have decreased marginally from 2014
• Yet premium rates have continued to decrease
• This trend is anticipated to continue throughout 2015 albeit at a slower pace.
• However with in excess of 50% of the annual market premium being lost with the Egyptsat & Progress failure and
very recent Mexsat launch anomaly this could see a change in the rating going forward the remainder of the year
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Recent Significant Claims
Mission
Claim Amount
Event
Launcher/Satellite
Year
Mexsat-1
USD 380m
Launch Vehicle Anomaly
Khrunichev Proton M Briz M
2015
Progress
USD 75m Est.
Launch Vehicle Anomaly
Soyuz
2015
Egyptsat
USD 75m
Attitude Control
RSCC Energia
2015
Cyguns ORB 3
USD 48m
Launch Vehicle Anomaly
Orbital Sciences Corporation Antares 130
2014
Earth Cast
USD 17m
Broken Camera lenses
ISS
2014
ABS-2
USD 214m
KU-band Beam Fault
Space Systems/Loral LS-1300
2014
Yamal 201
USD 28m
Telecommand Fault
RSC Energia Yamal 200
2014
Express AM4R
USD 217m
Launch Vehicle Anomaly
Khrunichev Proton M Briz M
2014
Amazonas 4A
USD 136m
Power Anomalies
Orbital Sciences Corporation Star 2.4E (Geostar 2.4E)
2014
O3b
USD 320m
Power Anomalies
Thales Alenia Space Elitebus
2013
Intelsat 27
USD 406m
Launch Vehicle Anomaly
Yuzhnoye Sea Launch
2013
Glonass *3
USD 27m
Launch Vehicle Anomaly
Khrunichev Proton M Briz M
2013
Koreasat 5
USD 41m
Failed solar array deployment
Alcatel Alenia Space Spacebus 4000C1
2013
Express MD-1
USD 28m
Faulty orientation of antennas
Khrunichev Yakhta
2013
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Cause of losses
Causes of Insured Losses
100%
90%
80%
60%
50%
40%
30%
20%
10%
Satellite Losses
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
0%
1998
% Causes
70%
Launch Vehicle Losses
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2015 International Market Working Capacity (Millions)
Launch – USD 694M
60
50
Launch Vehicle Flight Only
capacity for a dual launch
Ariane 5 ECA is more than
USD 900M
40
30
20
10
0
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USA - $90.5M
United Kingdom - $313.5M
Rest of Europe - $80M
France - $139M
Asia & Other - $70.85M
2015 International Market Working Capacity (Millions)
In-Orbit – USD 533M
50
40
30
20
10
0
USA - $72.5M
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United Kingdom - $269.5M
Rest of Europe - $65M
France - $58M
Asia & Other - $67.85M
Premium vs Claims
$2,000
$1,500
$1,000
`
$500
$0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-$500
Premium
Claims
3 Year Rolling Profit
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30
Theoretical Capacity
Typical L + 365 Rate
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
Capacity USD Billions
$1.5
20.0%
$0.5
15.0%
10.0%
5.0%
$0.0
0.0%
L+1 Rate
Market Capacity vs Rate
Capacity
40.0%
35.0%
30.0%
$1.0
25.0%
2015 Conclusion
• 2015 is set to be much more competitive then previous years
– Current capacity available for regular risks is more then enough.
– Early year losses have put pressure on insurers to make up for the poor start to the year
– Losses and launch delays could see rates start to harden
• 35 major insured launches are planned for 2015 up on 2014, however with such a busy schedule and
launch delays on multiple launchers we expect this estimation wont be met.
• Insurers will differentiate themselves from their compotation by offering alternative coverage options:
•
•
Long term cover
Launch plus life
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PART 4: INSURANCE MARKET
CHALLENGES
Future Issues
• New Launch Vehicles
• Space Tourism
• Sum Insured accumulations
• Constellations
• Space Debris
• Trade Restrictions, e.g. “ITAR”, Sanctions
• New Technology, commercial cost/ time pressures
• Diversity of applications
• Industry Consolidation
• Larger Sums Insured
• Space Weather
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When Things Go Wrong
Sea Launch Failure
When Things Go Wrong
Proton Failure
APPENDIX A: ... HISTORY OF
THE SATELLITE INSURANCE
MARKET ...
History of the Satellite Insurance Market
• 1965
First satellite pre-launch and liability policy for Earlybird (Intelsat 1)
• Mid 1970’s
Full launch coverage becomes available (without deductible)
• Early 1980’s
Emergence of a specialist satellite underwriting market
• Mid 1980’s
Market becomes very competitive (rates driven down to about 7% for a
shuttle launch 8% for others)
Severe losses (Challenger, Ariane and Delta) lead to dramatic reduction
in capacity and increase in rates (launch approx. 25%)
• Late 1980’s
Gradual reduction in rates
• Early 1990’s
Market matures
• Mid 1990’s
• 1997
Relative stability achieved Capacity expanding
Capacity continues to increase Competition between insurers creating
downward pressure on rates/extending coverage periods
Capacity peaks at US$ 1.2 billion. Decline in rating levels/severe
losses impact insurer profitability
Cumulative losses provoke market “hardening” and increasing rates
• 1998
• 1999
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History of the Satellite Insurance Market
•
•
•
•
•
•
•
•
•
•
2000
2001
2002/3
2004
2005
2006
2007
2008/12
2013
2014
Severe end of year losses push the market again into deficit
Reduced capacity, higher premium rates, shorter coverage periods
Generic losses threaten future of market
Even higher premium rates, policy exclusions
Profitable underwriting year, rates peaked
Softening market, rates declining.
Losses spark a knee jerk reaction and some rates rise.
Profitable underwriting year reverses trend, rates declining.
Loss for underwriting year, yet rates still declining.
Marginal underwriting year, capacity levels good.
–
–
–
•
2015
Buyers mainly mature and buying proven hardware.
Underwriters offering lower premium rates but wary historical burn cost.
Narrow spread, more volatility, global events impacting sector.
Poor start to the year
–
Insurance market nervous!
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APPENDIX B: INSURANCE
PURCHASING PROCESS
The Risk Planning Process
Business Plan and External Finance
Requirements
Contractual
Analysis
Technical
Analysis
Legal Analysis
Financial
Analysis
Supplier Contracts
(Satellite / Launch
Services Agreement)
Customer Contracts
Engineering
Documents,
Performance
Specifications
Regulatory
Requirements,
Licensing, International
Transactions
Business Plan, Equity
Partner Requirements,
Financing Obligations
Risk Transfer and
Risk Financing
Programme
Risk Management Plan
Self Insurance
(Risk Retention)
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Launch and In-orbit Insurance Campaign
Legal analysis
Summary of Objectives
Banking / Financial Considerations
Client/Insurers
Non-disclosure
agreements
Contractual Analysis
Prepare technical package for
insurers
Initial Presentation to market
Technical Analysis
Initiate Negotiations
Place Cover
Finalize Strategy
Post Launch
Briefing
Policy wording negotiation
Consulting Phase
Claims
Monitoring
Programme Design and Marketing
Placement and Administration
Monitor Market Conditions
Dec
Jan
Feb
Mar
Apr
May
Schedule of Events
Jun
Jul
Aug
Sep
Launch
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Principle and Approach
• Indemnifies loss, damage, failure to meet satellite performance specifications resulting in:
– loss of operational capability; and/ or
– loss of life
such that it cannot be used for its “intended purpose”
• Tailored for each risk
42
Key Features
• Interest
• Sum Insured
• Policy period and coverage period
• Total loss definition and constructive total loss definition
• Partial loss formula
• Salvage and subrogation
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Interest
• Principle of Insurable Interest
• Subject matter of Insurance such as:
To pay the Insured the applicable Sum Insured in the event of a Total Loss or Constructive
Total Loss, or to indemnify the Insured by paying the applicable Partial Loss amount, caused
by loss of, damage to or failure of the satellite taking place between Attachment of Risk and
Termination of Risk
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Sum Insured
• Book value (declining) vs. replacement cost
• Satellite cost, launcher cost, insurance costs
350
300
USD 000,000
250
200
150
100
50
0
Satellite Cost
• Loss of revenue, additional costs
Launcher
Cost
Insurance
Cost
Total Mission
Cost
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Policy Period
• “Window”, 12, 24, 36 months from inception date in which the coverage period can attach.
46
Coverage Period
• Attachment of risk (launch)
– intentional ignition (terminated ignition provisions); or
– lift off
• Generally continues for 12 months
– some markets offer longer periods: 3 years, 5 years, 10 years, Life (15 years)
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Total Loss Definition
• Complete loss, destruction, failure
• Inability to separate from launch vehicle
• Inability to reach/ maintain specified orbital location
48
Constructive Total Loss Definition
• Point beyond which satellite considered unusable, needs replacement
• Transponder failure threshold normally 75% or 90% of nominal operational capability
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Partial Loss Formula
• Proportional or non-proportional/ transponder weightings
• Actual operational capability less than nominal but not a total loss or constructive total loss
Sum insured x 1 –
actual operational capability
nominal operational capability
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Salvage to Insurers
• Constructive total loss
– transfer of title option for insurers; or
– % of residual operating revenue
• Partial loss
– % residual operating revenue
• Sale proceeds
– 100% up to the amount of the claim
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Subrogation
• Industry practices first party responsibility
• Satellite operator waives rights of recourse against satellite manufacturer, launch service supplier,
sub-contractors
• Insurers note and acknowledge waivers
• Negligence vs. gross negligence/ wilful misconduct
52
Documents and Procedures
• Confidentiality/ Non-disclosure Agreements
– often based manufacturer agreement
– executed with broker, individual insurers and consultants
53
USA and “ITAR”
• US International Traffic in Arms Regulations
• Chinese experience (Cox report/ insurance role)
• Export approval for underwriting information and presentations, failure reviews...
54
Underwriting Information
• Project and insurance overview, technical description
– London, Washington, Paris
• Underwriting documents, contracts, technical specifications
• Questions and answers
• Extensive process reflecting risk complexity
55
Quotation Slip/ Placing Slip
• Summary of terms and conditions for quotations
– “vertical” marketing now prevalent (each insurer at its own price)
– few insurers now “followers”
56
Policy Wording
• Detailed contract, consistent with placing slip
• Individually tailored, common aspects (exclusions...)
• Leaders negotiate, followers follow
• Contract certainty
57
Premium Rating and Negotiation Factors
• Commercial conditions, buyers or sellers market
• L/V experience and configuration
• S/C heritage, redundancy, fuel/ power budget, margins
• Customer profile
• Volume discount and buying power
58
Documentation and Finalisation of Cover
• Cover note
• Policy wording
• Invoice/ debit note
– 5% or 10% deposit at inception
– balance 30 days prior launch
• Bank transfers
59
Pre-launch Review
• Technical modifications, waivers, final budgets
• Satellite and launcher certification
• Material change, renegotiate affected terms/ conditions
– e.g. re-design or prior launch vehicle or “sister” satellite anomaly
– failure review presentation, Q & A, resolution
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Post Launch Briefings
• Launch outcome, acquisition, attainment of orbit
• Deployment and commissioning
• Start of commercial operations
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APPENDIX C: SOME
COMMONLY USED TERMS
Some Commonly used Terms (cont.)
•
•
•
•
•
•
Apogee:
The point where an orbiting body is at its greatest
distance from earth
Apogee kick motor: Rocket motor used to take a satellite
from
transfer to geostationary orbit, fired when satellite
reaches apogee
Service bus:
The satellite service module and power
supply
which supports the payload
Communications: The part of the satellite which provides
the
communications service
Up-link:
The communication path from an earth
station
up to a satellite
Down-link:
The communication path from a satellite down to
an earth station
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Some Commonly used Terms
•
T.T. & C:
Tracking (where the Satellite is) Telemetry
(status
of the satellite / its systems) control
(telling the spacecraft what to
do).
•
Spinner:
•
Three Axis:
Cylindrical body spins to provide
Gyroscopic stability, antennas located on
Spun” platform, Solar cells on outside
of cylinder.
Stabilised Internal momentum wheels provide
gyroscopic stability, Solar Cells on flat panels
“De-
kept
facing sun
•
Transponder: A communication path through a satellite
(receive
up-link signal from earth, change to
down-link frequency, amplify
signal, transmit
down-link)
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Some Commonly used Terms (cont.)
•
Perigee
The point where a body orbiting the Earth is
closest to the Earth
•
Perigee kick motor A motor used to place a satellite in transfer orbit,
fired when the satellite
reaches Perigee
•
Redundancy
•
Single point failure A single component the failure of which
will
cause complete system failure as
there is no redundancy
•
Shroud
The protective fairing which houses and
the payload on the rocket
•
Solar array
A spare or backup system built into the
satellite
protects
The area of solar cells which provide
electrical power to the satellite
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Some Commonly used Terms (cont.)
• TWTA:
Travelling Wave Tube Amplifier
• SSPA:
Solid State Power Amplifier
• Footprint transmission: Ground area covered by a Satellite
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