03 January 2024
Space Insurance
Market Update Q4 2023
2023 started off as predicted, with rates trending downwards and capacity remaining sufficient to drive competition for the majority of risks. However, this outlook changed dramatically in the second half of 2023, when claims of around USD826m were presented to insurers.
As reported in our Q3 Plane Talking market update, underwriters are set to take a significant loss in 2023. Interestingly, over 85% of the 2023 loses (including the two standout large losses from Viasat-3 and Inmarsat 6-F2) have stemmed from post-separation spacecraft issues, rather than launch failures. Following the notification to markets of these potential losses, in particular after the loss of Inmarsat 6-F2, a number of insurers reacted quickly with knee-jerk increases in premium across their entire space insurance portfolios. This rating re-set stuck throughout the rest of 2023 as underwriters try to recompose their senior managements, reinsurers and capacity providers with the promise of restored profitability going forward.
We are expecting to see a decrease in capacity for space risks as we enter 2024, as we saw in 2019 following similar levels of market loss, however we do not believe this will be as dramatic as some have been reporting. BRIT is so far the only insurer to pull out of the direct market in 2023. Nevertheless, we are aware of others that are looking to reduce their overall exposure or pull out of the class altogether. We do note that there is a significant difference between theoretical and deployed capacity within the space insurance market. Consequently, any immediate loss of capacity may be tempered by remaining underwriters deploying their preferred capacity amount and achieving larger lines on attractive target business.
In summary, over the last 6 months we have seen a significant increase in premium rating following what have been historically high loss levels. Although this response is understandable, in our view underwriters should not lose sight of the need to maintain and develop a consistent and sustainable insurance market in the long-term, rather than maximise short-term price gains. As we saw in the wake of 2019 losses, such short-term gains can swiftly evaporate as new capacity is drawn into the sector, competition re-asserts itself and softening ensues.
Underwriters should not lose sight of the need to maintain and develop a consistent and sustainable insurance market in the long-term, rather than maximise short-term price gains.
Market Outlook in 2024
While the outlook for 2024 remains uncertain, there are a number of key drivers to look out for that will shape the market:
- Available capacity - renewals of insurance capacity and reinsurance arrangements are currently being finalised and the resulting level of supply will determine how the market performs. As we saw following 2019, a significant uptick in rating can quickly attract new entrants looking to capitalise on perceived pricing opportunities.
- Further large losses – if the market experiences further large losses, we would expect upward pressure on premium rating to intensify. In particular recent press articles relating to the newly launched SES O3b spacecraft are causing concern for underwriters.
- Underwriter reaction to prime business – As pricing has significantly increased over the last 6 months, the next real test of underwriters’ resolve will come from a sizable and attractive launch package, especially if it is viewed as material to their business plans and income targets.
- Upcoming technology – as we have noted in several previous Plane Talking articles, new technology in both launch vehicles and satellites will be coming to market in 2024. Underwriters will try to price these risks at higher levels than ‘tried-and tested’ technologies, but with a limited pool of expected placements being marketed in 2024, the expected differential may be compressed due to competition between insurers for the available premium.
- Programme delays – we have seen a large number of projects delayed. This potentially allows insurance buyers to defer coming to market until conditions begin to settle
Noting all of the above, 2024 is gearing up to be a year of challenge for buyers and sellers. The space insurance market remains a ‘spot market’ with rates and security fully finalised on binding of insurers – and therefore the only certainty is what is available at any point in time. Optimists may well look to delay any decision to buy, expecting market pricing to reduce, however this approach relies on loss levels dropping well below premium income; and that of course, is always far from certain.
Small satellite
As expected in 2023 the small satellite industry continues to grow with Euroconsult now predicting 26,104 small satellite launches between 2023 and 2032. However, 2023 itself has come with the challenges of tough global macro-economic conditions, a number of high-profile failures and many start-up companies struggling to remain solvent.
For space insurers, the small satellite sector has continued to develop, there is an estimated 3% of LEO satellites now being insured, an increase of 200% from 2021 when only an estimated 1% of LEO satellites where insured. The outlook continues to be mixed with some small satellite start-ups preferring to build system redundancy rather than buy insurance. We expect the shift away from self-insurance to expand with space insurance becoming more important to the small satellite industry as it moves towards maturity.
2023 has been a successful year for the UK space sector with a number of highlights, such as the first orbital satellite launch attempt in January; an agreement for a UK astronaut mission via Axiom Space; and the announcement that the UK is to re-join the Horizon and Copernicus ESA programmes. Looking ahead to 2024 we are expecting to see a vertical launch leave from UK soil, which we hope will pave the way for the UK to grow its satellite launch capabilities.
Final thoughts
2024 looks to inherit the volatility and disruption of the last half of 2023, with many insurers still finding their feet with pricing, especially as they wait to see where the overall market capacity lands in the New Year. Gallagher continues to recommend that buyers engage as early as possible with an insurance broker that has the required space-focused services, personnel and bandwidth. This ensures access to the consistent, reliable and relevant advice needed to develop a programme that effectively de-risks current market volatility and maximises the opportunity to secure the best possible terms.
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