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Commercial Space Insurance

page 1

Commercial Space Insurance

 

The space insurance aspect of the Intelsat 708 launch failure focuses on the exchange of controlled technical information within the insurance community. Insurance underwriters and reinsurers for the Apstar 1A satellite program ó the next scheduled satellite to be launched on the Long March 3B after the Intelsat 708 failure ó were concerned about the reliability of the Long March rocket, and the fate of future launch insurance programs in the PRC.

Immediately after the Intelsat 708 launch failure, space insurance underwriters for the Apstar 1A insurance program pressured the PRC to create an international and Independent Review Committee (IRC). These underwriters and reinsurers insisted on this arrangement to ensure that an adequate assessment of the risks of future Long March rocket launches was made.

Representatives from J & H Marsh & McLennan, an international space insurance brokerage firm, were adamant about obtaining a report from the Independent Review Committee for the benefit of the reinsurers of the Apstar 1A satellite insurance program. Members of the space insurance community were invited to attend a meeting on April 15 and 16, 1996, in the PRC. The purpose of the meeting was to build confidence in the Long March rocket, and to discuss the status of the Apstar 1A insurance program.

The space insurance acquisition and underwriting process includes the dissemination of technical information, the consideration of market conditions, capacity, and participants, and the involvement of insurance brokers, underwriters, and reinsurers. This chapter identifies several issues relating to procedures for the disclosure and handling of sensitive information by the insurance community.

It is unclear whether, or to what extent, the transmission of controlled technical information to and from the space insurance industry is reviewed in advance or monitored by U.S. Government officials.

The Role of Commercial Space Insurance In Technology Transfer to the PRC

Aspects of the Long March 3B-Loral-Intelsat 708 Failure

The Intelsat 708 satellite was destroyed in a Long March 3B crash on February 15, 1996.1 It was the second in a series of nine Intelsat satellites for which International Space Brokers was the sole insurance broker.2

Intelsat had arranged for the Peopleís Republic of China (PRC) to launch three of the nine satellites (Intelsat 707-9, Intelsat 708, and Intelsat 801-6) on the PRCís Long March 3B rocket.3

The Intelsat satellite 708 was insured for $204.7 million.4

Intelsat obtained space insurance for the launch phase only. The launch phase extended from intentional ignition of the rocket to separation of the satellite from the rocket.5 Under the terms of the policy, risk transferred from the pre-launch insurers for the manufacturer of the satellite, Space Systems/Loral (Loral), to Intelsatís insurers at the intentional ignition of the Long March 3B rocket carrying Intelsat 708.6

There were approximately 15 to 20 insurance underwriters and many reinsurers for the package that included the Intelsat 708 satellite.7 The lead underwriters were Marham Space Consortium8 and Munich Re of Munich, Germany.

Other insurance underwriters who participated in the coverage of the Intelsat 708 satellite were:

    • U.S. Aviation Insurance Group
    • AXA Reinsurance Company
    • La Reunion Spatiale
    • AGF Reassurances
    • Reliance Assurances
    • The Sumitomo Marine & Fire Insurance Company, Ltd.
    • Great Lakes9

The Intelsat 700 Series satellite insurance package was negotiated approximately six months prior to the first launch, when a data package including technical information on the Long March 3B was submitted to the underwriters.

After the launch of the Long March 3B rocket carrying the Intelsat 708, Intelsat reassigned the remaining two launches that had been slated for the PRCís Long March 3B to French Ariane rockets.10

Intelsat documents indicate that the decision to procure launch services from the China Great Wall Industry Corporation was based on the size of the Intelsat 708 satellite and the fact that the price was significantly below that of an Ariane launch. Intelsat documents revealed:

At issue are the agreements regarding commercial satellite launches negotiated by the PRC and the U.S. in January 1989 which deal with trade issues and market entry, technology safeguards, and liability.

Under these agreements introductory or promotional prices are allowed for the first or, in extraordinary circumstances, the second successful commercial launch of a new launch vehicle.11

A Loral program manager was on-site at Intelsat during the Intelsat 708 project, and an Intelsat program manager was on-site at Loral. Intelsat insurance issues with Loral were coordinated through a Loral office located at Intelsat.12

Prior to the first launch of an Intelsat satellite on a PRC rocket, Intelsat requested that its broker submit a data package on the Long March 3B to underwriters because it was a developmental rocket.

The data package for the Intelsat 708 launch included a relatively large quantity of data on the Long March 3B, because of the rocketís then-recent developmental status.13

Michael Hewins, then Chairman of the Space and Telecom Group for J & H Marsh & McLennan,14 says that both his firm and Asia Pacific Telecommunications Satellite Co., Ltd. were interested in the reliability of the Long March after the Long March 3B-Intelsat 708 failure. Hewins says that Professor Bao Miaoqin, Chief Engineer at the PRC-controlled Asia Pacific Telecommunications Satellite Co., was told by his superiors to use the Long March, for the upcoming Apstar 1A launch, but but Hewins does not have any specific information about this request.15

China Great Wall Industry Corporation provided the requested data in order to demonstrate that the Long March 3Bís development was complete. Intelsat used China Great Wall Industry Corporationís data in its presentation to underwriters. The data covered both the Long March 3B and the PRC launch facility.16

Terry Edwards, Manager of Intelsatís Launch Vehicle Programs Office, supervised the Intelsat 708 assessment team, and interacted with Intelsatís insurance brokers. For its part, Loral provided data directly to China Great Wall Industry Corporation on the satellite-rocket interface, while Intelsat instructed Loral to take all steps necessary to demonstrate a proper interface.

Intelsat officials say that Intelsat was aware of export control requirements and complied with them, and that the Defense Technology Security Administration monitored technical meetings among the satellite owners, rocket owners, satellite manufacturers, and insurance representatives.17

Intelsatís business considerations were the basis for the cancellation of the two scheduled PRC launches following the February 15, 1996 Long March 3B crash.18 Intelsat documents stated that:

There is an unreasonable and unacceptably high technical and safety risk in proceeding with additional [Long March 3B] launches of Intelsat spacecraft until [China Great Wall Industry Corporation] has accomplished a sufficient number of successful operational launches of the vehicle demonstrating a reliability equal to other major providers of launch services to Intelsat." 19

Intelsat has not used a PRC rocket since the failure of the Long March 3B

carrying Intelsat 708.

According to Mark Quinn, former Vice President at J & H Marsh & McLennan, there were no J & H employees on-site in the PRC for the Long March 3B-Intelsat 708 failure. Quinn says he does not recall any specific discussions, and says he did not have any conversations with underwriters or reinsurers regarding that failure. Nor did Quinn discuss specific issues regarding insurability for that program with anyone. Quinn says that he contacted his clients regarding the Long March 3B-Intelsat 708 failure and also called contacts at Loral. Quinn does not recall the content of the calls, other than to ask whether market conditions had changed.20

The Treasurer of Intelsat, Randall Bonney, has primary contact with Intelsatís insurance brokers for insurance-related issues. Bonney is responsible for submitting the Notice of Loss to the insurance companies in the case of a failure, and he prepared the Summary Report of Loss for Intelsat 708. Intelsatís Launch Vehicle Program Office is the insurerís point of contact for technical information. Most launch service questions from insurance underwriters come through this office at Intelsat, but some may not have done so.21

J & H Marsh & McLennanís Hewins, then Chairman of the firmís Space and Telecom Group, recalls that Loral President Bernard Schwartz projected a broad intent to "get it right" regarding satellite launches in the PRC. However, Hewins says he had no specific discussions of the subject with Schwartz.22

The Formation of the Independent Review Committee

The launch failure of the Long March 3B rocket carrying the Loral-manufactured Intelsat 708 satellite occurred on February 15, 1996. Immediately, the French space insurance underwriters for the upcoming Apstar-1A launch pressured the launch service provider, China Great Wall Industry Corporation, through their insurance broker, J & H Marsh & McLennan, to create an Independent Review Committee. China Great Wall Industry Corporation was about to launch the Hughes-made Apstar-1A satellite for the PRC-controlled Asia Pacific Telecommunications Satellite Co. aboard a Long March rocket.

On February 21, 1996, Paul OíConnor, then Vice President of the Space and Telecom Group of J & H Marsh & McLennan in Washington, D.C., wrote China Great Wall Industry Corporation recommending that "CGWIC should implement an immediate and aggressive public relations (PR) campaign with space insurance underwriters" by way of a technical briefing on the Intelsat 708 mission failure.23

OíConnorís letter stressed the importance of quick and decisive action by China Great Wall Industry Corporation. Lost confidence on the part of the PRCís customers, he said, could cost tens of millions of dollars in business. "The space insurance underwriters should see that China Great Wall Industry Corporation is serious about getting its message out to the international community and is prepared to act quickly and with determination, rather than react to customer requests." 24

Jacques Masson, then Manager of J & H Marsh & McLennanís Paris office, discussed the Intelsat 708 failure with the French insurance industry, specifically the underwriter La Reunion Spatiale. As Masson explained in a February 22, 1996, e-mail:

We should strongly recommend to implement an independent inquiry board. As far as I know from various information release [sic], Chinese have formed three committee[s]: oversight committee, investigation committee, and the failure investigation and analysis group.

All of them are strongly linked to Chinese industry.

The message that we shall send them, is that their credibility is at stake and without any international independent inquiry board we donít give them much chance of success. Everyone I discussed with are very strong on that point. This is the way that Arianespace is doing each time.

I will send you by separate mail some input from previous Ariane failure inquiry board[s]. This information is confidential, however. [S]chedule quick very quick help to form it.25

Back  |  Forward


COX REPORT

Overview
pages 1 | 2 | 3 | 4

PRC Acquisition of U.S. Technology
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

PRC Theft of U.S. Nuclear Warhead Design Information
pages 1 | 2 | 3 | 4 | 5

High Performance Computers
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10

PRC Missile and Space Forces
pages 1 | 2 | 3 | 4 5 | 6 | 7 | 8 | 9

Satellite Launches in the PRC: Hughes
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

Satellite Launches in the PRC: Loral
pages 1 | 2 | 3 | 4 | 5 | 6

Launch Site Security in the PRC
pages 1 | 2 | 3 | 4 5 | 6

Commercial Space Insurance
pages 1 | 2 | 3 | 4

U.S. Export Policy Toward the PRC
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9

Manufacturing Processes
pages 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10

Recommendations
pages 1 | 2 | 3

Appendices
pages introduction | A | B | C | D | E | F



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