LONDON, 20 March 2008 – Space insurers are targeting premium increases of up to 30% following losses in 2007, which included the failures of the Sea Launch rocket carrying the NSS-8 satellite and the Proton carrying JCSat 11. Now with another failure of the Proton rocket carrying the AMC-14 satellite, this spells a pivotal time for both the insurance market and operators after several years of reducing premiums, according to the latest Aon Space Market Review 2007.

The 2007 space insurance market, worth approximately US$660 million in launch and in-orbit premium, saw the arrival of several new insurers* which led to abundant capacity and falling premiums. The market was then sent into a state of flux in December when, on top of the launch failures, the Rascom 1 satellite suffered a helium leak resulting in its journey to final orbit with a heavily reduced lifetime and a potential claim of US$256 million to its insurers. In total, claims are estimated to reach US$835 million for 2007, prompting insurers to re-assess their premium rating and income targets for 2008.

Ultimately, insurers looking to win business need to persuade their management of the rationale behind offering competitive rates. Whilst 2007 was an uncharacteristic year for space claims when set against the more reliable experience and good market profitability of the previous five years, it was not inconsistent with longer-term industry trends. If insurers perceive 2007 and early 2008 as an indication of higher claims patterns to come, this could lead to tough negotiations over the coming months.

Peter Elson, senior managing director of Aon Space, commented: “Competition will inevitably exert downward pressure on rates but at present it’s a battle of wills between insurers’ perceived need to charge more in response to increased claims versus the laws of supply and demand. Due to high capacity, competition will be rife on attractive business and where the sums insured are low. Conversely, for less proven technology or systems with reliability concerns - especially when combined with a need for high levels of insurance - the market will prove stickier in pursuing its price targets. We’re therefore likely to see more differentiation in pricing not only between risks but also amongst insurers for any given risk.”    

“To keep rates competitive going forward, operators will need to demonstrate their quality and reliability while insurers will be placing extra emphasis on good track records and commitment to quality control.”

In late 2007 following the series of claims and reducing market revenue, Aon Space anticipated that another loss during the impending Ariane 5 GS launch, insured for more than US$400 million over two satellites, could create an immediate reaction on rates. A number of operators had insurance programme placements in progress but only Aon worked to bind long-term programmes for its clients the day before the launch, which ensured they were not affected by the knock-on effect of the Rascom 1 satellite failure. 

Up until 14 March, 2008 had been extremely quiet for insurers with a number of brokers holding off placements in the hope of improved market conditions. As we go to press, and with the stand-off continuing, the risk of this strategy was again highlighted by the latest failure of the Proton M Briz M rocket upper stage and possible loss of the AMC14 satellite on-board. Deposited in an unusable orbit, analysis is now underway to determine whether AMC14 has enough fuel to make its own way to its intended orbital location, albeit with a reduced operating life. Insured for US$192 million, and coming hard on the heels of the 2007 losses, insurers will undoubtedly feel the need to stiffen their resolve for premium rate increases where they can be achieved.

* New entrants include: Atrium in London, Asia Capital Re in Singapore, Axa Corporate Solutions in Paris, Elseco in Dubai, Glacier Re in Zurich and Korea Re in Seoul.

For more information contact:

Alexandra Lewis

0207 882 0541

Alexandra.lewis@aon.co.uk

About Aon

Aon Corporation (NYSE:AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 43,000 professionals worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was ranked by A.M. Best as the number one global insurance brokerage in 2007 based on brokerage revenues, and voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 by the readers of Business Insurance. For more information on Aon, log onto www.aon.com.

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