Launch & Space Liability Insurance Overview Presentation to COMSTAC Washington, DC

1. Launch & Space Liability Insurance Overview Presentation to COMSTAC Washington, DC October 30, 2008 Raymond F. Duffy Jr.Senior Vice President Willis Inspace212-915-8209 raymond.duffy@willis.com

2. Asset coverage (i.e., launch and in-orbit insurance) Covers owner or operator of a launch vehicle or satellite against loss of the physical asset due to physical loss, damage or failure Insured value for satellite replacement cost (satellite + launch + insurance cost) typically $150-250 million Market annual premium typically $700-800 million Liability coverage (i.e., launch and in-orbit liability insurance) Covers owner or operator of a launch vehicle or satellite against claims by third parties for bodily injury and property damage Limits of insurance policies typically ≤$500 million for large launch vehicles Market annual premium typically <$20 million Insurance coverages for space activities

3. Space liability - historical developments • In 1984, after Challenger and the discontinuation of commercial shuttle flights, a U.S. Government Presidential mandate was issued to promote competitiveness of the U.S. launch industry by making U.S. Air Force launch facilities available for commercial launches. • More recently, Congress mandated fiscal responsibility for the launch industry. Government entities began efforts to reallocate launch risks to the commercial sector. • Aviation products liability insurers generally provide space liability insurance. • Liability coverage for a launch failure would arise out of the launch liability or products liability insurance policies. • Total annual worldwide launch and in-orbit liability premium is less than $20 million.

4. U.S. Government Launches • Viewed as a procurement under the Federal Acquisition Regulations • Responsibility (“care, custody and control” = CCC) was thought to pass to the Government at the manufacturing site or when the vehicle arrived at the launch site • Some policies “deemed” launch vehicles and spacecraft products not to be in the CCC of the insured upon arrival at the launch site • Responsibility for damage to Government property was assumed to remain with the Government (e.g., Air Force or NASA)

5. Launch and in-orbit liability coverage issues • Available limits • Launch and in-orbit: ≤$500,000,000 • Launch • Multiple parties involved in process • Inter-party liability • Third-party liability concerns • US Government reluctance to provide indemnification • e.g., NASA Constellation program (Ares/Orion) • Liability for post-accident clean-up costs • In-orbit • Non-coordinated satellites / frequency interference • Co-located satellites

6. Historical approach to launch and in-orbit liability issues • Commercial Space Launch Act (CSLA) • Applies to commercial launches only • Governs licensed launch activities • “Launch” includes the flight of a launch vehicle and pre-flight ground operations beginning with the arrival of a launch vehicle or payload at a U.S. launch site and ending for ground operations when the launch vehicle leaves the ground, and for flight after the licensee’s last exercise of control over the launch vehicle. • Provided in lieu of PL 85-804 • Excess of MPL (Maximum Probable Loss) as advised by FAA • Flow-down…all parties are protected • PL 85-804 (Ultra-Hazardous Indemnification) • In the past PL 85-804 has usually been given by U.S. Government • If PL 85-804 is not granted, Government would pay for insurance or increased limits of insurance already in place • Excess of insurance or in lieu of insurance • Current trend is for the government to try to pass this risk to the supplier and not provide 85-804 • Occurs most often for launches the Government believes are of a less-hazardous nature • NASA Space Act Agreements • Provided in lieu of PL 85-804 • Excess of MPL (Maximum Probable Loss) as advised by NASA • No flow-down…each contractor has to have its own Space Act Agreement • Insurance market has been able to work in conjunction with these programs to successfully tailor coverage to needs of launch operators

7. Manufacturers in-orbit liability coverage issues • Available limits: Up to market capacity (currently ≤$2,000,000,000) • In-orbit satellite failures arising from products defects have increased. • Strength of contractual indemnifications between satellite owners and manufacturers has increasingly been tested by insurers who have paid asset claims to satellite owners for these failures. • Currently subrogation is proceeding where owners’ insurers are trying to recover from a manufacturer due to negligence. • In a recent case, court arbitration found operator did not properly inform insurers before the loss, so insurers did not have to pay claim. • Future problems with satellite product defects will continue to keep the issue on the table.

8. Foreign Commercial Launches • Arianespace • Provides coverage to its customers and subcontractors for approx. €61,000,000 • Unlimited government indemnification in excess of insurance • Availability of the indemnification has never been tested • Process is transparent for the customer • Chinese and Russian launches • Typically provide coverage for a limit of $300,000,000 • Government indemnification may be available excess of insurance • Coverage for subcontractors, customers, and satellite manufacturers is sometimes provided • Liability standards are not as burdensome as in the U.S. • Japanese launches • Typically provide coverage for a limit of ¥20,000,000,000 • All of these programs essentially mirror the CSLA

9. Conclusion • Sufficient aerospace liability insurance capacity exists today to provide coverage for government and commercial launches. • Insurers will also be able to provide launch liability coverage for new emerging launch vehicles and space operations. • Insurers look for CSLA indemnification, PL 85-804 designation, NASA Space Act protection, and other limitation of liability clauses. • Due to the low annual market premium for space liability, a significant insured loss will be subsidized by premium from other lines of insurance business • As a result of a loss, the market would likely experience: • Significantly increased pricing • Potential withdrawal of indemnification and other limitation of liability extensions from the Government. • Reduction or withdrawal of coverage by insurers