While it may be too early to assess the financial impact on Sea Launch of this month's Zenit-3SL launch failure that left its Intelsat 27 payload in a Pacific Ocean submarine orbit, insurers are licking their wounds. At $406 million, the flight is the largest space insurance loss ever - nearly wiping out the entire profit from 2012 before much of this year's premium income has been collected, and threatening to turn the space insurance market to unprofitability.
As in other classes of insurance, specialist brokers spread the risk associated with any given flight by offering shares to many underwriters. A typical risk of an insured value of $400 million might have 25 underwriters covering it at premium rates for a launch plus one year risk, ranging from 7% to 15% of the insured value, according to the perceived reliability of the launch vehicle and satellite design. After the first year, the annual premium rate for in-orbit cover drops to 0.6-1.0%.
On a calendar accounting basis, in 2012, the space insurance market as a whole returned a very healthy profit, continuing the profitable trend of recent years. Again as in other classes of insurance, though, profit attracts more underwriters - and the competition tends to push premiums down, raising the spectre of unprofitable years to come.
"Insurance rates are largely driven by supply and demand. The over-supply of capacity today has increased competition and driven rates to some of the lowest levels ever seen," says David Wade, space underwriter at the London-based Atrium Space Insurance Consortium.
With respect to the type of losses incurred, while the late 1990s and early 2000s were dominated by in-orbit failures compounded by policy wording errors, in 2012, the estimated $425 million losses incurred were dominated by launch vehicle failures.
Underwriters are even more concerned about the lack of differentiation in rates between reliable and less-reliable launch vehicles and spacecraft. "Despite losses, rates have continued to be put under pressure and, significantly, the differentiation between different risks has been eroded to a point where it is minimal," warns Wade.
In any case, uncertainty is unnerving; while the Ariane 5 rocket's reliability is admired and is, in turn, rewarded with a low premium rate, concerns remain over its ability to fly two high value insured spacecraft on the same launch. "As sums insured continue to increase, and due to the accumulation of exposure on dual launches in particular, the insurance market will probably find itself with insufficient premium revenue to pay a single large loss," says Wade.
The market is also having to cope with new risks. While Ariane 5, Proton and Soyuz are well known, they are being joined by a new and diverse range of launch vehicles. SpaceX's Falcon 9 has built up a large launcher order book, but is relatively untried.
New satellite technologies also have to be priced for risk. Inmarsat chief technology officer Ruy Pinto notes that operators want to use new spacecraft technology to stretch for ever more capability, but believes the risk is manageable by careful testing. However, with a recent trend of offering multi-year policies, insurers do appear to have opened themselves up to a repeat of the expensive lessons learned from the heavy losses of the early 2000s, when a string of in-orbit failures led to annual renewal being a standard practice.
Indeed, Jan Schmidt, space underwriter at Swiss Re, the firm that has led the recent re-introduction of multi-year policies, agrees that unexpected generic faults with new technology might be seen as a "sword of Damocles" hanging over insurers. Nevertheless, he says: "If you are charging an adequate risk premium [for the extra years], then you can do it."
As if launcher faults and spacecraft failures aren't worry enough, "natural threats" such as solar and meteor storms are also real. The 45m (148ft) diameter asteroid 2012 DA14 will on 15 February pass Earth inside the orbit of geostationary satellites worth some $400 million each - but any of the more numerous bullet-sized meteorites could destroy a spacecraft. Man-made debris is seen as less of a threat at such high orbits, but an Iridium communications satellite in low-Earth orbit was hit and destroyed by an out-of-control Russian satellite in 2009.