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16TH ECSL SUMMER COURSE ON SPACE LAW AND POLICY

September 3rd-14th, 2007

Noordwijk, Wednesday 12th, 15 :30-16 :45

Lecture on :

Risk management and insurance practices

Dr Benito PAGNANELLIManaging Director

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SPACE RISKS

• Catastrophic nature

• Little value of statistics

• Technical evaluation case by case

• Risk management

• Reliability and level of confidence

TECHNOLOGY EVOLUTION

• LAUNCHERS:

- Single satellite launch: Thor Delta, etc..

- Multiple satellite launches: Proton, Atlas, Ariane 5, etc...

- Space shuttle satellite launch (reusable)

- Space shuttle as such not insured

• SPACECRAFT:

- from 15-18 kgs weight to 600-700

- ISS: International Space Station

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SATELLITES UTILIZATION

• Military: not insured

• Scientific/civil: sometimes insured

• Commercial: mostly insured

SPACE INSURANCE EVOLUTION

• Evolution from 1965: Intelsat I (Early Bird) insurance

• The insurance market

• Brokers, insurers, reinsurers

• Insurance capacity

• Volatility

• Insurance premium pricing: just a gamble ?

• Period of insurance

• Launch and in-orbit multi-annual policies (health status evaluation)

•Market insured satellites launched, claims, loss ratio statistics:

40

25

50

75

100

125

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

LEO & other satellites

GEO satellites

Insured launches

Market Insured Satellites Launched

50

25

50

75

100

125

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

LEO & other satellites

GEO satellites

Insured launches

Market Exposures vs. Capacity

$0

$500,000,000

$1,000,000,000

$1,500,000,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

0

25

50

75

Theoretical Maximum Market Capacity

Maximum Market Insured Launch Value

Insured Launches (right scale)

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Market Capacity - 2007Source: Broker statistics for Launch Placements

• $540,000,000

• 28 companies

• No single market has more than 10% share

Asia

US

UK

Europe

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Split of Failures by Phase of MissionLaunch plus first year in orbit, since 2000Commercial communications satellites

Remainder Of First Year

19% Launch Vehicle Flight39%

First Month In Orbit42%

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Space Insurance Market LossesLaunch Vehicle vs. Satellite

0%

25%

50%

75%

100%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Total

Launch Vehicle Losses Satellite Losses

37%

63%

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Space Insurance Market Premium and Losses

-$1,500,000,000

-$1,000,000,000

-$500,000,000

$0

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Earned premium (net of brokerage)

Incurred losses (paid and potential outstanding)

Net result since 1998

10-100%

-75%

-50%

-25%

0%

25%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Profit margin over ten years:

5%

Space Insurance Market Profit MarginCumulative since 1998

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SATELLITE INSURANCE, MAIN RISKS CONVENTIONAL SEGMENTATION

• MATERIAL DAMAGE AND LOSS OF REVENUE:

- Pre-launch phase

- Launch phase

- In-orbit (life) phase

- Performance incentives

- Launch delay

- Re-launch guarantee by manufacturers and launch operators

• THIRD PARTY LIABILITIES:

- Pre-launch, launch and in-orbit phases

- Launch operators and state protection schemes (ESA, NASA, etc...)

- Joint assureds

• OTHER RISKS:

- Product liability

- Contractual liabilities

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POLICY WORDINGS

• Pre-launch• Launch

• In-orbit

• Performance incentives

• Third party liability

• Etc..

MAIN CHARACTERISTICS OF POLICY WORDINGS

• Pre-launch insurance: property and transport traditional language

•Space launch insurance: innovative

• Satellite in-orbit life insurance: innovative

• Third party liability insurance:

- pragmatic solutions solve difficult legal issues on responsibility

- joint assureds

- no subrogation among operators

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SOME LEGAL ISSUES

• Treaties and conventions on third party liability: state and/or private responsibilities

• Proposed space protocol to the Convention on International Interest in Mobile Equipment (by Unidroit)

• ITAR (Internationl Traffic in Arms Regulations)

• Claims handling

• Litigation

• Partial loss and total loss

• Definition of loss (total or partial), insuring agreement, salvage, subrogation, additional insured and loss payee, due diligence, misrepresentation

• Arbitration

• CCC (Claims Coordination Committee)

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SPACE TOURISM• Space tourism evolution

• Aviation or Space legal-insurance regime?

• USA: Federal Aviation Administration (FAA) regulates space tourism activities under a space related regime (Act HR5382, effective date Feb. 13th, 2007).

Main features:

– Launch liability insurance policy must cover all launch participants and a reciprocal waiver of claims subrogation is mandatory.

– Required insurance is statutorily capped by a known formula, the maximum probable loss («MPL»), for

1. third party bodily injury or property damage (not to exceed $ 500 million often ranging $ 150 million) and

2. damage to Government property (not to exceed $100 million) for each launch.

3. Above these amounts, the Government endeavours to pay claims above the required limit of insurance up to $ 1.5 billion. In excess of the Government contribution, insurance should then apply again.

4. Under the liability insurance policy of the licenced operator the following entities must be insured (joint assureds)

» Launch licensee» Government and its Agencies and sub-contractors» Contractors and sub-contractors of the customer» Customer related entities with financial interest

continues

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Continued

• Need for new international legislation to facilitate development

• By year 2015, 15.000 tourists expected(?)

• First fatal accident already occurred on the ground

INTERNATIONAL INSURANCE BODIES

• International Union of Aerospace Insurers (I.U.A.I.)

• Space Risks Study Group (SRSG) (I.U.A.I.)

• Policy Certification Initiative (PCI) (I.U.A.I.)

• Claims Coordination Committee (CCC)