Estimating Satellite Insurance Liabilities

Satellite insurance liabilities for a portfolio of direct insurance contracts or facultative reinsurance contracts consist largely of unearned premium liabilities, with relatively smaller contributions from reported and unreported losses. As in life insurance, there is a high probability of loss at launch (birth) ,and in the early period of operation (infancy), a period of low risk of loss throughout the majority of operation, and a period of high probability of loss towards the end of the satellite's life. This paper describes the risks covered under a satellite policy and discusses the value of using a simulation model based on an active life approach to estimate the expected losses related to a satellite insurance portfolio's unearned exposure. In addition to providing an estimate of the expected losses, such a model allows for the evaluation and incorporation of the benefits from a reinsurance program protecting the portfolio. This model can also be used to estimate the anticipated benefit from reinsurance protections being considered for the portfolio and to price treaty reinsurance contracts. This paper discusses the concepts underlying the construction of such a model and describes the types of information needed to estimate the model parameters. As part of this discussion, we provide a brief history of the industry and discuss some of the hazards to which satellites are exposed.