At this time last year Gallagher’s outlook for 2021 was optimistic. We predicted rates stabilising as a result of improving supply and increased insurer appetite to deploy capacity. As 2021 concludes, we can report that this trend did in fact materialise but, particularly in the latter half of the year, somewhat surpassed our prediction with the emergence of downward pressure on rating for attractive launch and in orbit risks.
2021 Overview
As we approach the end of 2021, capacity in the space insurance market has remained at a sufficient level for buyers. Insurers have competed to obtain their preferred share on the majority of risks. As such, for attractive risks (primarily those without technical issues or overly large sums insured) premium rating has reduced over that achieved in 2020, especially in the second half of the year.
A particular focus for space underwriters in 2021 has been the drive to secure their preferred participation on a number of “blue chip” Geostationary (GEO) launch risks which inject the majority of the insurance premium into the market. These risks highlight the availability of capacity and strong competition between insurers for these highly sought after risks.
Despite the loss of Sirius SXM-7 very early in the year, cumulative losses for 2021 are currently tracking in line with 2020. With the value of losses so far sitting lower than the premium amounts placed in the market, this has allowed underwriters to be flexible and for the premium rating to start to reduce from the highs seen in 2019 and 2020. For 2021 many market sources are predicting a “small profit” for the market as a whole, with those underwriters not participating on Sirius SXM7 posting very positive end of year results. A number of impacts relating to COVID-19 still persist, however launch cadence is returning to pre-COVID levels and the supply chain issues that have been noted by manufacturers are abating. On the market side, insurers now have significantly more clarity regarding potential COVID-19 claims and as such are able to analyse this data more comprehensively and achieve a better grasp of the likely overall affect on their portfolios. Looking forward to 2022 2021 delivered in broadly line with Gallagher predictions with volatility reducing, rates stabilising and capacity remaining sufficient for most risks. Gallagher expects this trend to continue into 2022. Absent a significant market event or multiple large losses, we foresee the downward pressure on rates continuing as insurers compete for business.
The key drivers of risk pricing are likely to remain capacity required and the technical characteristics of individual risks. Those placements utilising the majority of the market capacity available will see higher ratings from insurers across the board, alongside additional expense if the most expensive markets are needed to complete final syndication. The implementation of new technologies or risks with a challenging technical profile will also see underwriters look to apply higher premium rating, as well as targeting technical margin to distance themselves from certain elements of risk exposure.
Several large GEO launch packages were placed in 2021 covering several years forward, and as a result 2022 may prove to be a relatively lean placement year for underwriters. Gallagher would expect insurers to once again compete strongly to secure participations on attractive launch risks in 2022, especially multilaunch packages, to ensure their premium targets can be met.
However, we note that considerable volatility remains inherent in this sector as a consequence of its narrow spread of risk. We would therefore expect a significant response from underwriters on both pricing and available capacity in the event of several large claims in close succession, as we witnessed in 2019.
2022 Capacity
Looking forward into 2022 capacity levels remain more than adequate, with that lost during 2019 and early 2020 now being replaced with new markets re-entering the space insurance market or existing markets obtaining increased capacity from their backers. Notably, Ascot will enter the space insurance market at the start of 2022 with a maximum capacity of USD25m having employed the highly experienced Space team that previously worked at AIG.
There has also been a number of recent mergers and/or personnel movements in late 2021 (e.g. Partner Re space team moving to Applied Underwriters Aerospace, LLC and Canopius having acquired Assure Space) however these changes in themselves are not expected to impact overall capacity or market conditions in 2022.
We note that in light of expanding capacity levels, Gallagher is working closely with our clients to take a more forensic view of individual insurers and their relative strengths and structures. This analysis has been very well received and allows our clients to better identify preferred long-term partners, align their needs and style with insurers and to implement the most effective strategies to elicit the best possible results during placement.
Small Satellite Focus
2021 has seen the NewSpace sector advance at pace with multiple key players now moving into commercial operations after many years of development.
Amongst the achievers are Virgin Orbit which will be launching its LauncherOne rocket with Spire’s ADLER-1 three-unit cubesat joining the manifest. The deal was turned around in less than a month, fulfilling plans for rapid access to space.
“Mega constellations” continue to grow, led by SpaceX’s Starlink constellation of 1,600+ operational satellites (with at least 3,000 more due to be launched) along with OneWeb’s constellation of 250+ operational (with 400 more due to be launched). Both of these projects are aimed principally at providing worldwide broadband internet connection. In addition, there are numerous microsat telecommunications constellations that are either close to or have become operational.
Source: Gallagher data, AXAXL and publicly available information. Spire completed its acquisition of exactEarth, becoming a global leader in space-based maritime data and analytics utilising its 68 microsatellites. Globalstar’s 2nd generation constellation now provides internet and Internet-of-Things (IoT) services, and Swarm Technologies’ IoT constellation of 120+ CubeSats took its network live this year.
These companies are just the tip of the iceberg with many more looking to become operational within the next twelve months. A number of insurers are continuing to develop bespoke insurance products for this NewSpace sector but for now, the majority of NewSpace company satellites in LEO do not maintain in-orbit coverage.
Summary
As we look forward from 2021, when capacity expansion has led increased competition between insurers for attractive risks, we feel the environment is increasingly positive for insurance buyers looking to secure space insurance cover in 2022.
The industry as a whole continues to move forward at pace with the impacts of COVID-19 being better understood and the small satellite sector making large strides as several key players such as Virgin Orbit and Spire firmly establish commercial operations. We look forward to working with our clients as this industry growth continues to accelerate in 2022.
The space team at Gallagher has been able to secure several significant wins in 2021 considerably increasing market share and has once again delivered outstanding results on risk pricing, risk coverage, compliance, audit and service for our clients. Gallagher Space remains as committed as always to securing the very best outcomes for our clients in this dynamic and evolving marketplace.
