Satellite insurance sees rates soar as losses grow

A string of losses that ended a long run of profitability for space market insurers has sent rates skyward.

A market that showed profits every year from 2008 through 2017 was “chugging along very nicely, a string of ten years of profitability”, said Jeff Poliseno, CEO of Aon’s International Space Brokers. “Then, in 2018 we had a couple of significant losses and the market felt the taste of losing money for the first time in a long time.”

Things only got worse for satellite risks and their insurers. In 2019, the loss of a Vega rocket cost insurers $411.2m. “That was a big loss for the market,” said Richard Parker, head of space at specialty insurer and reinsurer Canopius Group.

“That really exacerbated things,” Poliseno agreed, and rates began to skyrocket. “In the space market, where we saw historically low levels of premium rating,” rates quickly jumped as much as 300% in some cases, he added.

The losses were a signal to insurers that “the business is profitable if priced correctly, but it hasn’t been priced correctly”, said Christopher Kunstadter, global head of space at AXA XL.

Premiums plunge
Annual written premiums ranged from about $750m to $1bn from 2002 to 2012, according to Kunstadter. Since then, a proliferation of smaller satellite launches meant insurers were writing fewer large-limit risks, while some trimmed their space books to reduce volatility and put capital in other places, sending premium writings earthward, he said.

Well off their highs nine years ago, premiums amounted to about $450m in 2020, a year that was profitable on a “pure loss” basis, Kunstadter said. But once expenses are added in, last year was a loser for insurers, he pointed out.

Insurers began 2021 with hopes that rising rates could deliver a profitable year, Poliseno said. But early in the year a Sirius XM satellite failed and insurers paid the $225m loss. “The positive outlook was greatly dimmed at that point,” he noted.

Barring other significant losses, however, the market could manage a profit this year, sources said. In early November, satellite losses in 2021 stood at about $345m and premiums amounted to $385m, according to Kunstadter.

Premium income for the year is expected to total about $515m, according to Poliseno.

While launch rates remain firm and are up to three times higher than in 2019, there has been some softening in the cost of in-orbit coverage. “We were seeing rates of 0.9% to 1%” of insured value, said Parker, and rates have dipped as low as 0.6% for new spacecraft.

Good risks find capacity
Even as underwriters are committing more capacity to smaller satellite risks, there is plenty available for large risks, sources confirm.

“Capacity in the market is available and it’s fairly abundant,” said Poliseno. “That being said, we have seen the market become extremely restrictive in the sense that they only want to pursue heritage-based, highly reliable components, satellites and launch vehicles.

“If it’s a new technology, something without a lot of heritage or a spotty reliability record, it’s extremely challenging to get competitively priced insurance at the limit that might be required for the project,” Poliseno continued.

A “highly reliable risk” can find about $600m in launch coverage, he said, and about $450m is the maximum capacity for an in-orbit risk. “But it would have to be a pristine risk to garner that support.”

“You can buy more insurance, but it starts to get very expensive when you’re over the $600m mark,” said Parker. “There are some very big satellites being manufactured at the moment and they’re going to run into this headwind probably in the next 12 months.”

Dangers in orbit
Space insurers generally cover the flight of the launch vehicle from ignition to separation of the satellite into orbit, with post-separation coverage of an operations-and-testing phase, plus in-orbit life of the satellite for one year. Orbit coverage is renewed annually and is based on the insurer’s review of the satellite’s health.

With the satellite in orbit, insurers are wary of failures from unknown causes that could lead to losses, and they have concerns around space debris and other active satellites that could lead to collisions.

“We’re seeing more partial losses on satellites in orbit and we’re trying to get to the bottom of that,” said Kunstadter. “It could be that in the rush to get satellites up to orbit, maybe there’s less attention on some of the quality processes. We’re very comfortable with the risks and we’re very comfortable with our clients and the way they are building and operating satellites. But maybe, sometimes in the rush to get a launch, something slips through.”

Space is getting increasingly crowded in some places, and flying junk isn’t the only concern for insurers worried about damage to spacecraft. “The risk of a collision between an active satellite and another active satellite is a concern also,” Kunstadter said.

Insurers are working with industry groups on “space traffic management”, which Kunstadter described as “keeping track of assets in space and trying to avoid collisions”.

“There’s more focus on it now, for sure,” Poliseno said of the collision threat. “But we haven’t seen any impact on the insurance market financially as a result of debris.”