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Space Insurance Experience and Outlook: A Statistical Review of Volatility

Space Insurance Experience and Outlook: A Statistical Review of Volatility. May 2005. Christopher T.W. Kunstadter Executive Vice President U.S. Aviation Underwriters, Inc. 199 Water Street New York, NY, 10038, USA. Tel: (+1) 212-859-3690 Fax: (+1) 212-344-1381 Mobile: (+1) 201-214-1138

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Space Insurance Experience and Outlook: A Statistical Review of Volatility

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  1. Space Insurance Experience and Outlook: A Statistical Review of Volatility May 2005 Christopher T.W. Kunstadter Executive Vice President U.S. Aviation Underwriters, Inc. 199 Water Street New York, NY, 10038, USA Tel: (+1) 212-859-3690 Fax: (+1) 212-344-1381 Mobile: (+1) 201-214-1138 Email: ckunstad@usau.com Web: www.usau.com

  2. When Bad Things HappenTo Good Hardware

  3. The Insurance Market Cycle High Profits Profits Rise Increased Capacity Rates Increase Seek Market Share Flight to Quality Relaxed Underwriting Hard Market Soft Market Capacity Decrease Rates Decrease Insolvencies/Withdrawals Inadequate Rates Inadequate Reserves Mounting Losses

  4. Non-Pricing Factors Affecting Insurance Volatility • Increased complexity of risks • Frequency and severity of losses • Lower investment income • Interest rates and equity markets • Uncertain global economic situation • Globalization, dollar, oil, consumer prices, hedge funds, terrorism • More scrutiny by regulators and rating agencies

  5. What Is Space Insurance? • Loss due to the failure of, or physical damage to, satellites, launch vehicles and other space payloads • Physical damage only (including hardware failure) • May include business interruption when specified • Types of coverage • Launch (launch vehicle flight and/or initial operations) • In-orbit • Geostationary communications satellites are 85-90% of the business volume • Clients are launch vehicle and satellite manufacturers, operators and users

  6. Characteristics of Space Insurance • Constantly changing technology • Each risk is unique • “Generic” or “serial” nature of anomalies • Volatility of underwriting results

  7. Insured Satellites Launched Source: IUAI SRSG

  8. Insured Launches – Success vs. Failure Source: IUAI SRSG

  9. In-Orbit Insured Satellites and Exposures GEO Population (as of Apr 05) * Excludes constellations (Iridium, Globalstar, Orbcomm) ** Includes MEO (ICO, Sirius) Source: IUAI SRSG

  10. First Year Satellite Reliability(based on year launched) Western-built geostationary communications satellites only Figures are percentage of capability lost for satellites launched in the year noted Capability lost is calculated as the total claims as a percentage of the sum insured, for each separate loss Includes known and quantifiable uninsured failures on satellites that had previously been insured Source: IUAI SRSG

  11. Satellite Failure Rates, by Model(first year – cumulative since 1990) >45%!! *Satellite models no longer marketed * * * * Western-built geostationary communications satellites only Figures are percentage of capability lost Capability lost is calculated as the total claims as a percentage of the sum insured, for each separate loss Includes known and quantifiable uninsured failures on satellites that had previously been insured Source: IUAI SRSG

  12. Satellite Failure Rates, by Model(second and subsequent years – cumulative since 1990) 122 satellites 95 satellites *Satellite models no longer marketed * * * * Western-built geostationary communications satellites only Figures are percentage of capability lost Capability lost is calculated as the total claims as a percentage of the sum insured, for each separate loss Includes known and quantifiable uninsured failures on satellites that had previously been insured Source: IUAI SRSG

  13. Losses – Launch Vehicle vs. Satellite(paid and potential outstanding) Source: IUAI SRSG

  14. Cumulative Market Results Source: IUAI SRSG

  15. Warren Buffett said... “Nothing sedates rationality like large doses of effortless money.”

  16. Space Insurance MarketProfit Margin Since 1994 1.2% cumulative profit margin over 11 years Source: IUAI SRSG

  17. Market Capacity vs. Activity Projected Source: IUAI SRSG

  18. The Three Six Biggest Client Concerns in Space Insurance • Price • Exclusions for generic anomalies • Claims handling / scope of coverage • PRICE • PRICE! • PRICE!!!

  19. Where Do We Go From Here? • Plenty of capacity for growth among launch vehicle and satellite manufacturers and operators • Growth areas are DTH/HD, mobile radio and mobile comm’s • New technologies and market pressures dominate industry • Space insurance is still a catastrophe business • Insurance market consolidation will continue • We price our product often long before knowing its cost • Insurers recognize that their capital can be much more effectively deployed elsewhere • Insurance companies require larger operating margins to justify the allocation of capital to this volatile business

  20. Winston Churchill said… “If you’re going through hell, keep going”

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