Market Update

Chris Kunstadter, XL Insurance

SPACE INSURANCE:
MARKET UPDATE
CHRIS KUNSTADTER ● XL INSURANCE ● MAY 2014

© 2014 XL Group plc companies. All rights reserved.

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Agenda

Global economy

Space industry

Space insurance market

Launch and satellite experience

Unique threats

Conclusion

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The Global Economy

Modest global economic growth

Certain sectors evolving


Energy – e.g., alternative sources
Technology – e.g., “Internet of things”
Health care – e.g., biosciences

Insurance profitability steady


-1% to +4% per year by region

Modestly fewer cat losses in 2013
Meteorological phenomena increasing
Capital influx

Exposure formation continues

Systemic
Specific

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Top Ten Global Systemic Risks  Fiscal crises in key economies  Structurally high unemployment / underemployment  Water crises  Severe income disparity  Failure of climate change mitigation and adaptation  Greater incidence of extreme weather events  Global governance failure  Food crises  Failure of a major financial mechanism or institution  Profound political and social instability Source: World Economic Forum Global Risks Report 2014 © 2014 XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 5 .

All rights reserved.Natural Catastrophes in 2013 Chelyabinsk meteorite impact Russia. 15 February 2013 Source: Munich Re NatCat Service © 2014 XL Group plc companies. MAKE YOUR WORLD GO 6 .

launch vehicles Infrastructure build-out continues Privatization is working Satellite orders remain stable Small satellites increasingly popular Commercial human spaceflight on the horizon The not-so-good news      Government support waning Some new markets slow to develop Satellite and launch delays affect income New technologies pose challenges Environmental factors unresolved © 2014 XL Group plc companies. operators. manufacturers. All rights reserved.State of the Space Industry  The good news        New applications. MAKE YOUR WORLD GO 7 . technologies.

Space Activity Metrics  81 launches to orbit in 2013    209 satellites on the 81 launches    88 of the 209 satellites were cubesats (42%) 52 of the 121 non-cubesat satellites were insured (43%) 1.7%) + one or more anomalous launches 38 launches were insured (46%) – 1 insured launch failure Most are civil. research or national security 212 satellites are insured (18%) 1. MAKE YOUR WORLD GO 8 .167 active satellites in all orbits    3 launches failed (3.396 objects in geostationary (GEO) orbit   322 are active commercial satellites (23%) 178 of these active commercial satellites are insured (55%) © 2014 XL Group plc companies. All rights reserved. scientific.

Rokot. Dnepr. Epsilon. PSLV. All rights reserved. Naro. MAKE YOUR WORLD GO 9 .Launch Attempts to Orbit Insured and uninsured Number of launches 100 OTHER 75 FALCON H-IIA/B ZENIT 50 ATLAS DELTA ARIANE 5 PROTON 25 LONG MARCH SOYUZ 0 Year launched “Other” in 2013 = Antares. Kuaizhou. Pegasus. Strela. Minotaur. Vega © 2014 XL Group plc companies.

Insured GEO Satellites Launched Number of satellites launched By manufacturer 30 ENERGIA KHRUNICHEV MELCO IAI ISRO CAST ISS LM BOEING TAS ORBITAL AIRBUS SSL 20 10 0 Year launched © 2014 XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 10 .

MAKE YOUR WORLD GO Russia & Asia 11 .Insured GEO Satellites Launched Percentage of satellites launched By region of manufacturer 100% 75% 13% 27% 50% 25% 0% US & Europe © 2014 XL Group plc companies. All rights reserved.

ISRO Japan Israel 0 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Launch date © 2014 XL Group plc companies.Commercial GEO Satellites Launched By manufacturer Number of satellites launched 30 SSL Airbus Orbital TAS 20 Russia 10 Boeing LM CAST. MAKE YOUR WORLD GO 12 . All rights reserved.

All rights reserved. MAKE YOUR WORLD GO 13 .000 2.500 5. kg Separated mass (kg) 7.GEO Satellite Mass Progression Separated mass.500 0 Launch date © 2014 XL Group plc companies.

MAKE YOUR WORLD GO 14 .Cubesats Launched 100 100% 75 75% 50 50% 25 25% 0 0% Percentage of all satellites launched Number of cubesats launched Number and percentage of total Year launched © 2014 XL Group plc companies. All rights reserved.

All rights reserved.167 total © 2014 XL Group plc companies. MAKE YOUR WORLD GO 15 .Satellites In Orbit 1.

Commercial Space Lifecycle An example © 2014 XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO .

MAKE YOUR WORLD GO 17 . generic anomalies. uncorrelated with other lines of insurance  Several new markets in 2014  Very soft insurance market in general Unique underwriting challenges  Rapidly-evolving technologies. … © 2014 XL Group plc companies. All rights reserved. environmental hazards.Characteristics of Space Insurance    Small population of risks + high severity = volatility of results  One launch can generate 10% of annual premium  One loss can wipe out full annual premium Overcapacity in space insurance  Low price of entry. short tail. high cash flow. losses settled quickly.

solar activity. interference External threats – intentional and unintentional On-orbit servicing – prox ops Hosted payloads – liability.What Keeps Us Up At Night  Operations  Environment – debris. cross-impact Commercial human spaceflight  Cyber – unbounded risk      Systems  Technology insertion Test and analysis  Workforce  Counterfeiting   Commercial  Global economy – shifting alliances  Market weakness and volatility Capital allocation Emerging risks   © 2014 XL Group plc companies. MAKE YOUR WORLD GO 18 . All rights reserved.

000.000 © 2014 XL Group plc companies.100.02% of total worldwide insurance premium 40+ companies worldwide provide direct.100.000 peak in-orbit value (highest in-orbit value ever) $406. All rights reserved.300.000. international space insurance   Launch capacity (working): $750.Space Insurance Metrics  $775.000 net space insurance premium in 2013        $806.000 In-orbit capacity (working): $550.000 peak launch value (1.000.000 peak claim (largest space insurance claim ever) 80% of premium was launch.200.000 potential insured losses from 6 events (104% loss ratio) $645.2x coverage ratio) $492. MAKE YOUR WORLD GO 19 . 20% was in-orbit 0.

All rights reserved. by region Asia $93m US $110m Rest of Europe Total launch capacity $150m $750.000 UK $240m France $157m © 2014 XL Group plc companies.000. MAKE YOUR WORLD GO 20 .Space Insurance Capacity Launch capacity.

MGA) MGA (new*) $83m In past 2 years: MGA (>2 years) $110m Company (new*) $28m  15% total capacity increase Company (>2 years) $529m  43% MGA capacity increase * “new” means in business for less than two years © 2014 XL Group plc companies. All rights reserved.Space Insurance Capacity Composition by type of insurer (company vs. MAKE YOUR WORLD GO 21 .

All rights reserved. insured and uninsured 29 operators have ~20% of the in-orbit fleet = 63 satellites (53 insured = 84%) 8 operators have ~20% of the inorbit fleet = 58 satellites (36 insured = 62%) 322 satellites among 45 operators 3 operators have ~40% of the inorbit fleet = 135 satellites (65 insured = 48%) 6 of 45 operators buy little or no in-orbit insurance (13% of operators. 31% of in-orbit fleet) 5 operators have ~20% of the in-orbit fleet = 66 satellites (24 insured = 36%) © 2014 XL Group plc companies.Commercial GEO Satellites In Orbit By operator. MAKE YOUR WORLD GO 22 .

Airbus 42 MAKE YOUR WORLD GO SSL 35 TAS 35 23 .Insured Satellites In Orbit By manufacturer. GEO and LEO Other 36 Boeing 13 212 insured satellites Orbital 24 LM 27 © 2014 XL Group plc companies. All rights reserved.

000. 2 1 4 7 2 6 4 44 3 L 1 2 11 180-190 190-200 200-210 210-220 220-230 230-240 240-250 250-260 260-270 270-280 280-290 290-300 300-310 310-320 320-330 330-340 340-350 350-360 000-010 010-020 020-030 030-040 040-050 050-060 060-070 070-080 080-090 090-100 100-110 110-120 120-130 130-140 140-150 150-160 160-170 170-180 1 3 10 875 7 9 7 8 $1.000.Insured GEO Satellites by Orbital Slot In 10° longitude increments $3.000 13 + $1. All rights reserved.000.000 9 9 9 L 4 000 L Location of libration points (positions of stable drift orbit) = 105W and 75E © 2014 XL Group plc companies.000.9b in LEO Aggregate exposure (30 satellites) Americas $2.000 8 9 10 7 $0 APAC EMEA MAKE YOUR WORLD GO East Longitude 24 .000.000.

Aggregate exposure ($ billions) Number of satellites Aggregate exposure and unit count. All rights reserved. by quarter $0 MAKE YOUR WORLD GO 25 .Market Insured Satellites In Orbit 300 $30 200 $20 100 $10 0 © 2014 XL Group plc companies.

4m CV*: 81.Market Insured Satellite In Orbit As of April 2014 Insured value 212 satellites Average: $139. All rights reserved. MAKE YOUR WORLD GO 26 .3% * Coefficient of Variability = standard deviation / average © 2014 XL Group plc companies.

25% 5% 20% 4% Launch + 1 year coverage 15% 3% 10% 2% In-orbit coverage 5% 1% 0% 0% Net in-orbit rate Net launch rate Market Annual Average Rates Year placed © 2014 XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 27 .

000 $500. All rights reserved.000.000 $0 Net Earned Premium © 2014 XL Group plc companies.000 $1.Market Annual Premium and Claims $2.000.500.000.000 $1.000.000. MAKE YOUR WORLD GO Incurred Losses 28 .000.

000.000.000 $750.000. MAKE YOUR WORLD GO Peak Insured Value 29 .000 $250.000 $500.000.9x 1. All rights reserved.Market Coverage Ratio Net premium vs.2x $1.000. peak insured value 2.000 $0 Market Premium © 2014 XL Group plc companies.

Market Leverage Multiple Ratio of aggregate exposure* to net premium Exposure : Net premium 40x 32x 30x 20x 10x 0x * Average annual exposure of all satellites in orbit. whether under launch or in-orbit policies © 2014 XL Group plc companies. MAKE YOUR WORLD GO 30 . All rights reserved.

000.000.Market Premium Flow 2008 . All rights reserved.2013 $1.000.000.000 2008 Net earned premium 2009 $750.000.000 $0 © 2014 XL Group plc companies. MAKE YOUR WORLD GO 31 .000 $250.000 2010 2011 2012 2013 $500.

Market Insured Losses by Cause Percentage of incurred claims Launch vehicle vs. satellite 100% 75% 50% 25% 0% Launch Vehicle © 2014 XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO Satellite 32 .

Long March 3A/B/C.Launch Vehicle Success Progression All launches of current GEO launch vehicles Cumulative success rate 100% 75% Average ~ 94% 50% 25% 0% Launch vehicles included (not shown in this order): Ariane 5 ECA/ES. H-2A/B. Delta 4. Falcon 9. Proton M / Breeze M. Zenit 3SL/SLB © 2014 XL Group plc companies. MAKE YOUR WORLD GO 33 . All rights reserved. Atlas 5.

H-2A/B. Atlas 5. Long March 3A/B/C.6% 10% 5% 0% Launch vehicles included (not shown in this order): Ariane 5 ECA/ES. Delta 4. All rights reserved. Proton M / Breeze M.Launch Vehicle Failure Rates Current GEO launch vehicles 25% Failure rate 20% 15% Average 5. Falcon 9. MAKE YOUR WORLD GO 34 . Zenit 3SL/SLB © 2014 XL Group plc companies.

since 2000 20% Failure rate 15% 10% Average 5. TAS © 2014 XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO 35 . Orbital.Insured Satellite Failure Rates By manufacturer. Russian (Energia. ISS. Lockheed Martin. Lavochkin combined). Boeing. SSL.3% 5% 0% Manufacturers included (not shown in this order): Airbus. Khrunichev. ISRO. first year in orbit. MELCO. CAST.

Lockheed Martin.5% 5. MELCO. 2nd and subsequent years in orbit. Orbital. Khrunichev. since 2000 Failure rate 7. ISRO.5% 0. SSL. Russian (Energia.Insured Satellite Annual Failure Rates By manufacturer. Lavochkin combined). Boeing. TAS © 2014 XL Group plc companies.5% 2. All rights reserved.0% Average 1. CAST.0% Manufacturers included (not shown in this order): Airbus. MAKE YOUR WORLD GO 36 . ISS.

launch and first year.Market Insured Losses by Phase Phase of operations. since 2000 3rd through 12th months 13% First 2 months in orbit 42% © 2014 XL Group plc companies. All rights reserved. MAKE YOUR WORLD GO Launch vehicle flight 45% 37 .

satellite age. All rights reserved. insured population 200 150 100 92 losses (42%) in first two months 50 0 0 1 2 © 2014 XL Group plc companies.Satellite Loss Progression Loss frequency vs. 3 4 MAKE YOUR WORLD GO 5 6 7 8 Satellite age (years) 9 10 11 12 38 .

MAKE YOUR WORLD GO 39 .Satellite Loss Progression Loss quantum vs. insured population 100% Loss Quantum 75% See next chart 50% 25% 0% 0 1 2 3 4 5 6 7 8 9 10 11 12 Satellite age (years) © 2014 XL Group plc companies. satellite age. All rights reserved.

All rights reserved.0 1.0 Satellite age (months) © 2014 XL Group plc companies. satellite age.0 0.5 1. first two months 100% Loss Quantum 75% 50% 25% 0% 0.Satellite Loss Progression Loss quantum vs.5 2. MAKE YOUR WORLD GO 40 .

All rights reserved.2 0.0 1. MECHANICAL) 25% OTHER BUS 0% 0-0.0-15 Age of satellite at anomaly (years) © 2014 XL Group plc companies.2-1.Satellite Loss Progression Losses by subsystem based on age at anomaly PAYLOAD 100% 75% PROPULSION 50% ELECTRICAL POWER (INCL. MAKE YOUR WORLD GO 41 .

MAKE YOUR WORLD GO 42 . All rights reserved.Tracked Space Objects As of December 2013 Source: ESA Red: Spacecraft (operational & retired). Blue: Fragmentation debris and mission-related objects © 2014 XL Group plc companies. Yellow: Orbital stages.

Widely-Reported Space Debris Events Last 20 years            1996 2000 2001 2007 2008 2008 2009 2012 2013 2013 Breakup Breakup Breakup Intentional Intentional Breakup Collision Breakup Collision Collision? Pegasus HAPS rb Long March rb PSLV rb FY-1C USA 193 Cosmos 2421 Iridium 33 / Cosmos 2257 Breeze M rb BLITS / FY-1C deb NEE-01 Pegaso / Tsyklon rb 713 pieces 343 pieces 370 pieces >3. All rights reserved. many (typically minor) satellite anomalies reported to space insurers are blamed on space debris. MAKE YOUR WORLD GO 43 . e.:  Solar array string losses  Attitude disturbances © 2014 XL Group plc companies.g.200 pieces 111 pieces In addition.300 pieces 174 pieces 509 pieces >2.

All rights reserved. MAKE YOUR WORLD GO .A Bad Day In Space © 2014 XL Group plc companies.

at least 25 other earthimpacting meteorites observed Source: NASA. MAKE YOUR WORLD GO 45 .000 buildings suffered broken windows Largest known earth impactor in over 100 years In 2013.600 people injured  Most from broken glass  No fatalities >7. All rights reserved.000 tonnes Impact energy ~440 kT TNT >1. Astronomical Institute of the Academy of Sciences of the Czech Republic © 2014 XL Group plc companies.Chelyabinsk Meteorite        15 Feb 2013. 0320 UT Estimated initial size  19m diameter  12.

All rights reserved. MAKE YOUR WORLD GO 46 . end-users and insurers © 2014 XL Group plc companies. but margins are increasingly thin  Competitive space insurance market demands even more diligent underwriting  New applications and technologies.Conclusion  Space insurance market has been profitable over the long-term. emerging risks. launch providers. and increasing hazards in the space environment will stress satellite operators. manufacturers.

All rights reserved.Space for new ideas… …new ideas for space © 2014 XL Group plc companies. MAKE YOUR WORLD GO .