GENERALI SOUNDS A WARNING

By | March 28, 2001 | Feature

Generali Global’s biennial space insurance conference, held recently in Rome, tended to be a repeat of the wake-up call of two years ago in Florence. CEO Benito Pagnanelli said that business had not improved significantly in the meantime.

The year 2000 did feature a downturn in launch activity: lift-offs of geostationary communications satellites were down almost 25 per cent, with under 30 launches compared with a running average of nearly 40 for the peak years 1997-1999.

Premium volume has been roughly similar during the past three years at around $900 million (E1 billion) a year, compared with the record year 1997, when it touched $1.2 billion.

Claims last year were still trending upwards: while the actual number of incidents dropped to less than half 1998’s total, the value of these payments rose alarmingly. Pagnanelli’s colleague Massimo Orsini said they were likely to total $1.15bn for 2000, against premium income of $945m. Clearly this cannot continue indefinitely as space insurance is “not a charitable organisation”, as Pagnanelli noted, and has to be self-funding over the long-term.

He is worried that the space insurance industry could run out of money to meet claims; this is styled ‘capacity’. “Useable capacity”, or money that is readily available, has now dropped to $500m per launch, $50m down on 2000. “I do not believe that space programmes will not find sufficient capacity…[but] it is not a certainty that this will always be so”.

Pagnanelli repeated his Florence criticism of underwriters who dipped into the market “in hopes of making a quick buck”. Not only were these casual suppliers lacking in know- how to make balanced reliability assessments, but they also tended to be fair weather underwriters with a tendency to withdraw from the market if things turned nasty. Not only did this mean that total capacity dropped; there was always the risk that they might take refuge in bankruptcy, with consequent loss of cover unless arbitration was resorted to, and this is always vexatious.

Orsini and Chris Gibbs, another Generali underwriter, both drew attention to the fact that bigger launchers were not necessarily more reliable. Further, they were now approaching the point where they might be carrying on a single flight the total ‘theoretical’ capacity of the market. This is now approaching $1 billion. Dummy-satellite missions to prove new launchers were a good idea, said Gibbs.

Richard Pelliccio, also from Generali, strongly criticised once again the rule-of-thumb whereby an operator who lost over 50 per cent of a satellite’s capacity could claim a total loss. If this happens four or five years into its lifetime, the owner could buy a new satellite with the proceeds. Pelliccio felt that the asset value of a satellite should be depreciated annually to remedy this situation.

Eric Allenspach of Swiss Re(insurance) drew attention to the ‘time bombs’ of satellites orbiting with suspect flaws (HS.601 control processors suffering from ‘tin whiskers’; allegedly delaminating solar cells on Astrium craft). These were lying in wait to give rise to plausible claims down the line.


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