04 April 2024
Space Insurance
Market Update Q1 2024
As we outlined in the previous edition of Plane Talking, due to recent adverse underwriting results, those space underwriters that renewed their consortium memberships and reinsurance programmes at 1st January had to navigate through some challenging and stressful conditions. Nevertheless, despite a small reduction in overall theoretical market capacity, there has been little change to the ‘working capacity’ available for buyers. However, with the recent news of a large claim regarding O3b being made public in February, pressure for insurers to show a clear plan to profitability remains front and centre.
As the 2023 underwriting year came to a close, the overall space insurance market underwriting result was a loss of circa. USD900mn against a premium income figure of circa. USD550mn (noting a further USD230mn loss in December 2022). As a class, space insurance is well known for its narrow spread and volatility, with a single large claim having the potential to make the difference between profit and loss. Historically, large loss years have been ‘paid back’ relatively quickly over subsequent years (for example, 2019 was a significant loss year followed by three years of profit). Looking back over both a three-year and five-year period, with loss ratios on average between 100% and 110%, insurers are suggesting that premium rating needs to increase significantly. While the logic is clear, in our view, some insurers are likely to be quickly disappointed by the quantum of increase they can achieve against their current expectations.
Following the O3b claim becoming public in February 2024, based on what we have seen so far, insurers have been able to continue to trade, albeit with some hesitancy and trepidation. Although early days, we suspect that the increase in pricing insurers achieved in Q4 2023 will prove sufficient for them to pursue a realistic return to profit in the coming years.
As we look forward further into 2024, despite large losses testing the resolve of insurers and capital providers, the capacity within the space insurance market remains ample to cover most risks and underlying appetite – especially for ‘plain vanilla’ risks – remains strong. However underwriters are under increased and immediate pressure to demonstrate their plans to get back to profitability. As a result many have become wary of deploying capacity for new technologies and on programmes where they perceive heightened technical risk.
As we have noted in previous Plane Talking articles, an acceptance of new technology is both necessary and inevitable within a viable underwriting stategy given that the next generation of launch vehicles and spacecraft (such as software-defined satellites) are now clearly the products being procured by satellite operators over the next few years. We note that continued delays to next-generation technology (specifically software-defined satellites and the Ariane 6 launch vehicle) may push this slightly further towards the horizon, but with the reduced number of heritage technology satellites being bought and scheduled for launch in the next three years, insurers will surely have to consider these programmes to be an important pillar of their future portfolios.
"As we look forward further into 2024, despite large losses testing the resolve of insurers and capital providers, the capacity within the space insurance market remains ample to cover most risks and underlying appetite"
Small satellite
The New Space industry continues to provide a reminder of an exciting future ahead. 2023 delivered some ground-breaking results for commercial space companies, including the first successful launch of a private lunar lander, commercial launch vehicles dominating the marketplace and Northstar launching the first dedicated space situational awareness constellation. The continued trajectory of growth within this sector was evident at Space-Comm Expo - the UK’s largest Satellite Industry Event - where some of the most exciting UK space start-ups were sharing their plans for the future.
As the New Space industry becomes more mature and attracts financing from a wider base, we are seeing an increased interest in risk transfer. Insurers are looking to broaden their portfolios and we see a more thoughtful engagement with new and innovative products as key to being able to provide a meaningful value proposition to New Space companies. Gallagher Specialty remains at the forefront of this sector and continues to work with a number of key stakeholders to develop solutions that are fit for purpose for these dynamic and entrepreneurial companies.
Navigating market dynamics
In our view it is critical that underwriters do not lose sight of the need to maintain and develop a consistent and sustainable insurance market in the long-term. A central element of this may well be focus on true differentiation with pricing increases applied more forensically for specific elements of risk (for example, we note that many recent claims have occurred during the post separation phase), rather than adopting a generic broad brush increase across all risks in an effort to push up the overall premium base. We also note that risk transfer to insurers has to continue to be seen to offer genuine value to buyers. If pricing levels become elevated to the extent that risk transfer is no longer financially viable, we may see some operators – especially those with large portfolios of in-orbit assets and revenue streams - choose to retain significantly more risk, impacting the overall premium pool available to insurers.
More than ever, during this challenging phase, the Gallagher Specialty Space team is striving to provide our clients with accurate, real-time and highly targeted risk management advice alongside bespoke products to both manage market volatility and ensure that insurers are given the opportunity to provide a risk transfer product that offers the best possible value.
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Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.