CHAPTER 8 TEXT | CHAPTER 8 NOTES
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.
Intelsat had arranged for the People's Republic of China (PRC) to launch three of the nine satellites (Intelsat 707-9, Intelsat 708, and Intelsat 801-6) on the PRC's 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 Intelsat's 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:
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 PRC's 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:
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 rocket's 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 Telecom-munications Satellite Co., was told by his superiors to use the Long March for the upcoming Apstar 1A launch, 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 3B's development was complete. Intelsat used China Great Wall Industry Corporation's data in its presentation to underwriters. The data covered both the Long March 3B and the PRC launch facility.16
Terry Edwards, Manager of Intelsat's Launch Vehicle Programs Office, supervised the Intelsat 708 assessment team, and interacted with Intelsat's 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
Intelsat's 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:
Intelsat has not used a PRC rocket since the failure of the
Long March 3B
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 Intelsat's 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. Intelsat's Launch Vehicle Program Office is the insurer's 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 & McLennan's Hewins, then Chairman of the firm's 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 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 O'Connor, 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
O'Connor's letter stressed the importance of quick and decisive action by China Great Wall Industry Corporation. Lost confidence on the part of the PRC's 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 & McLennan's 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:
The underwriters for the Apstar-1A program became disappointed that the PRC's failure review committees did not have foreign or Intelsat representatives.26 The French launch vehicle provider Arianespace, for example, typically creates an independent review committee after a launch failure to ensure international credibility and distance Arianespace from the review process. "This is interpreted by Westerners as CALT [the China Academy of Launch Vehicle Technology] wanting to 'hide' the results of the failure review and avoid independent international scrutiny," the underwriters said.27
J & H Marsh McLennan's O'Connor advised the PRC representatives that a typical schedule of an independent review committee for an Ariane failure would entail assessing the mission and setting up the review committee within the first week. Approximately two weeks later, a report of the committee's findings would be provided to Arianespace and the European Space Agency. Lastly, the committee would provide a briefing to customers and insurance underwriters regarding the failure investigation. Detailed information releases to relevant parties would follow.28
O'Connor praised China Great Wall Industry Corporation for its general dissemination of information relating to the failure to its customers and other parties. He also stressed, however, the importance of allowing J & H Marsh & McLennan to distribute information releases to the insurance underwriters on behalf of China Great Wall Industry Corporation. This step would, he urged, ensure that there is no delay in the release of information.29
O'Connor outlined specific items that must be satisfied for reinsurers to continue to underwrite the Apstar-1A program. The reinsurers must:
The reinsurers, O'Connor explained, believed that Intelsat should be considered to fill the role of an independent organization. China Great Wall Industry Corporation and the China Academy of Launch Vehicle Technology continued to receive, O'Connor noted, "strong international criticism . . . for failing to have an international, independent failure review team." 30
O'Connor advised China Great Wall Industry Corporation that reinsurers had stated that the Apstar-1A program would not proceed until these concerns were satisfied.31 On March 8, 1996, European underwriter Reliance Assurances stated to O'Connor: "We firmly believe that such a determination, together with an explanation of and concurrence with the appropriate corrective measures, is necessary to undertake an objective analysis of the insurance risk as it exists at this point in time." 32
On March 11, 1996, Henry Stackpole, III, of Loral in Tokyo wrote that "SS/L [Loral] has . . . offered 'in house' assistance if desired in the investigation but doubt seriously it would be accepted. We appear to be clear of any Chinese thought that the satellite was a causal factor." 33
A presentation at the Apstar-1A program insurance meeting was scheduled for March 14 and 15, 1996, in Beijing and included insurance market requirements. Attendees included:
According to J & H Marsh & McLennan presentation materials, requirements included an open and thorough investigation and an independent committee consisting of well-recognized industrial people.34
The French underwriting community identified three specific issues as the minimum necessary to raise the level of confidence sufficiently to insure future launches of the Long March 3B. The requirements were to reassess China Great Wall Industry Corporation's qualification, acceptance, and quality assurance programs, and to conduct a demonstration flight of the Long March 3B. "It seems obvious to the underwriters that the next Long March 3B launch is not insurable." 35
On March 20, 1996, J & H Marsh & McLennan's Masson wrote Professor Bao Miaoqin, chief engineer of the PRC-controlled Asia Pacific Telecommunications Satellite Co. whose Hughes-manufactured Apstar 1A satellite was the next scheduled launch of a Long March rocket (the Long March 3):
On March 20, 1996, and in a subsequent message dated March 21, 1996, to the PRC-controlled Asia Pacific Telecommunications Satellite Co., Masson identified three potential members of the Independent Review Committee: one each from Aerospatiale, Matra Marconi, and Arianespace. Each was an expert in rocket operations and in conducting in-depth failure reviews, and was retired from the private space industry.
None of the individuals had been contacted, however, pending the proper authorization from China Great Wall Industry Corporation and the China Academy of Launch Vehicle Technology. Messr. Bignier, a leading figure in the French and European space industry and a consultant to La Reunion Spatiale who had visited the PRC twice and was familiar with the PRC space industry and "the difficult position where are CGWIC and CALT today," had also been contacted and asked to support the creation of the Independent Review Committee.37
On March 21, 1996, Chuck Rudd, Senior Vice President of ACE Limited, a Bermuda-based underwriter, wrote Sheila Nicoll at J & H Marsch & McLennan that ACE had been informed (by an unidentified source) that Intelsat would provide technical expertise and familiarity with China Great Wall Industry Corporation to the Independent Review Committee. Intelsat, he said, "provides a level of comfort that the failure investigation will be complete and unbiased." 38
On the same day, ACE Limited officially advised J & H Marsh & McLennan that "the launch failure of the Long March 3B [constitutes] a material increase in the risk of loss under the Apstar 1A launch policy." ACE Limited stated that it found the actions of both the customer for the planned Apstar 1A launch, the PRC-controlled Asia Pacific Telecommunications Satellite Co., and the launch services provider, China Great Wall Industry Corporation, to be unacceptable:
Toward the end of March 1996, Intelsat declined to participate in the failure review. One J & H Marsh & McLennan official thought the decision was consistent with Intelsat's cancellation, after the Long March 3B-Intelsat 708 failure, of future Intelsat launches on PRC rockets until 2000.40
J & H Marsh & McLennan's O'Connor wrote Professor Bao Miaoqin of the PRC-controlled Asia Pacific Telecommunications Satellite Co. that:
The following day, April 2, 1996, O'Connor again wrote Professor Bao Miaoqin:
On the same day, April 2, 1996, Professor Bao Miaoqin wrote J & H Marsh & McLennan and China Great Wall Industry Corporation asking for a list of the Apstar-1A reinsurers and Independent Review Committee members by April 9, 1996.44
According to J & H Marsh & McLennan's Masson, who
wrote his colleague O'Connor on April 3, the underwriting community
wanted "minimum conditions to be satisfied" in order
to confirm insurance commitments with respect to the
On April 4, 1996, J & H Marsh & McLennan stated that
it had "not received any official advice" from China
Great Wall Industry Corporation that the Independent Review Committee
would be formed, "and if and when it's formed, as to who
will be invited." The
O'Connor wrote on April 4, 1996, that "[i]t is difficult for us to prompt China Great Wall Industry Corporation any more than we have (which has been on a daily basis)." J & H Marsh & McLennan was "awaiting the decision of China Great Wall Industry Corporation on the final list of the space industry experts who will participate in the International Oversight Committee (IOC)."
In an issues paper for the April 15 and 16 meetings prepared by J & H Marsh & McLennan, Masson and O'Connor noted that "[r]einsurers have insisted that an IOC [Independent Oversight Committee, i.e., the IRC] be formed by the China Academy of Launch Vehicle Technology to oversee the failure review for the [Intelsat] 708 mission failure. It is standard practice for Western launch service providers to establish an IOC immediately after a mission failure." 46
Reinsurers made the formation of an Independent Review Committee an "absolute requirement" prior to approval of the Apstar-1A launch campaign, since the China Academy of Launch Vehicle Technology had previously failed to use an Independent Review Committee for failure reviews: "[t]he [Long March 3B-Intelsat 708] failure review must be reviewed and endorsed by an IOC." Reinsurers would interpret a refusal as a sign of the China Academy of Launch Vehicle Technology's reluctance to be open about its failure review.47 Furthermore, J & H Marsh & McLennan believed that the minimum requirements regarding the Independent Review Committee were:
On April 4, 1996, O'Connor wrote Professor Bao Miaoqin:
As of April 4, 1996, China Great Wall Industry Corporation said it was trying its best to establish an Independent Review Committee according to the minimum conditions set by the PRC-controlled Asia Pacific Telecommunications Satellite Co. and J & H Marsh & McLennan, and had developed a working schedule for such a group.50
According to Timothy Rush, former Intelsat program manager, the PRC set up the Independent Review Committee in order to remain in the launch services business. The parties with the most incentive to urge the creation of the Independent Review Committee were customers who needed launch services, and China Great Wall Industry Corporation. China Great Wall Industry Corporation feared that additional customers would cancel contracts unless it provided more reporting on the Long March 3B-Intelsat 708 failure.51
Donald Bridwell, manager of Intelsat's Major Programs Office, advised the Select Committee that "the next insurer would want to know about the failure." The next insurance broker for a PRC launch was J & H Marsh & McLennan, acting for the Hughes-built Apstar-1A.52
J & H Marsh & McLennan's Hewins, then Chairman of the firm's Space and Telecom Group, says he does not recall how the Independent Review Committee was formed. He does remember that he contacted the PRC-controlled Asia Pacific Telecommunications Satellite Co., the satellite customer for the next launch of a Long March rocket, and the underwriters for that next launch of a Long March rocket, following the Long March 3B-Intelsat 708 failure. Hewins does not recall any specific information being shared with the insurance industry after the failure.53
J & H Marsh & McLennan's Quinn, then a Vice President in the Space and Telecom Group, states that there may have been discussions regarding improving the reliability of China Great Wall Industry Corporation's rockets in a general sense.
Quinn says he was not aware that anyone at J & H Marsh & McLennan communicated to Loral or the Independent Review Committee regarding the PRC improving its launch capabilities. The first time that Quinn recalls hearing of the Independent Review Committee was in his office with Paul O'Connor, another J & H Marsh & McLennan Vice President on the Space and Telecom Group; he recalls that "Paul [O'Connor] was involved in it."
Quinn says he does not know, however, who requested the Independent Review Committee. He speculated that it may have been Asia Pacific Telecommunications Satellite Co., Hughes, the PRC, or the insurers.54
J & H Marsh & McLennan's Quinn recalls that an insurance meeting was held in Beijing on April 15 and 16, 1996 for the Apstar-1A satellite launch insurers.55
The China Academy of Launch Vehicle Technology and China Great Wall Industry Corporation launch service representatives presented possible causes of the failure of the Long March 3B carrying the Intelsat 708. The PRC representatives reported what they had done to date, and that work was ongoing. They summarized telemetry and tracking data.56 According to Quinn, the meeting constituted the first time that the underwriters received any information about the Long March 3B-Intelsat 708 failure.57
Quinn says that representatives from Loral, Hughes, the PRC-controlled
Asia Pacific Telecommunications Satellite Co., China Great Wall
Quinn says that he does not recall Nick Yen, Secretary of the Independent Review Committee and a Loral employee, being present at the meeting. Loral's Dr. Wah Lim, Chairman of the Independent Review Committee, Dr. John Smay, Independent Review Committee member and employee of Hughes' Chief Technologist and another unidentified Hughes representative were present, but Quinn does not recall whether any of them made any presentations.58
Quinn says that PRC representatives interacted with underwriters at the meeting through presentations in a controlled environment. He recalls that a Defense Department monitor was present. Quinn says that Asia Pacific Telecommunications Satellite Co. and China Great Wall Industry Corporation made presentations to approximately 10 to 15 insurance company representatives, describing what happened in the Long March 3B-Intelsat 708 failure, and why it would not happen in the Apstar-1A satellite launch.
J & H Marsh & McLennan's Quinn says he does not recall whether the Independent Review Committee gave a presentation.59 Quinn says that his role at the meeting was to "make sure things ran smoothly." In his view, members of the Independent Review Committee attended the meeting to "try to provide some comfort" to the insurers, but he does not know whether PRC representatives provided information or produced a report.60
Quinn recalls that his colleague, Paul O'Connor, played a liaison role for the meeting because he was the J & H Marsh & McLennan account manager for the Apstar-1A insurance program.61 O'Connor assisted in inviting the attendees, and the PRC-controlled Asia Pacific Telecommunications Satellite Co. may have provided some assistance.
Intelsat's Edwards says he and two or three technical managers from Intelsat athe meeting. Although Edwards does not recall specifically who went, all of the Intelsat attendees were from the Intelsat Launch Vehicle Programs Office. Edwards says that he does not recall whether Lim or Yen were present at any technical meetings or briefings he attended.
Two to three representatives from the China Academy of Launch Vehicle Technology were present. Six to eight representatives from China Launch and Tracking Control, the PRC organization which tracks the status of satellites, also were present, along with two to three representatives from the Xichang launch site. Intelsat's Edwards says he did not see any subcontractors from China Great Wall Industry Corporation at the meeting, but that there might have been a representative from Loral present.62
Quinn says that copies of the PRC's presentation were distributed to the underwriters, Independent Review Committee members, and J & H Marsh & McLennan staff.63 Quinn does not know the terms on which the presentation was distributed.64 Edwards says he does not recall a written report from the PRC at the meeting in Beijing.65
At issue at the conclusion of the meeting was Asia Pacific Telecommunications Satellite Co.'s desire to authorize Hughes to ship a satellite to the PRC for launch, provided insurance coverage was maintained. The underwriters agreed that Asia Pacific Telecommunications Satellite Co. could so authorize Hughes, but that this action did not obligate them to offer insurance.66
Thus, the insurance issue was still outstanding after the April 15 and 16, 1996, meeting. The underwriters agreed to discuss the insurance aspects in greater detail and request more information from China Great Wall Industry Corporation. Asia Pacific Telecommunications Satellite Co. representatives were hopeful that the insurance issue would be resolved prior to the launch.67
On April 17, 1996, O'Connor wrote to Diane Dwyer, a colleague at J & H Marsh & McLennan:
On April 23, 1996, an information release by China Great Wall Industry Corporation noted:
The Space Insurance Industry's
Involvement In the Release of the Independent Review Committee's
|February 15||The Loral-built Intelsat 708 launch fails.|
A confidential agreement for risk management advisory services is reached between J & H Marsh & McLennan, insurance broker for the Apstar 1A program, and China Great Wall Industry Corporation.
Paul O'Connor, J & H Marsh & McLennan Vice President, suggests that China Great Wall Industry Corporation implement an aggressive public relations campaign for underwriters. "Quick and decisive action is required."
Jacques Masson, Manager of J & H Marsh & McLennan's Paris office, reports discussions with French insurance community regarding the Intelsat 708 failure's impact on future insurance programs.
Masson first mentions the necessity to create an "independent inquiry board."
Underwriters for the Apstar 1A program become increasingly disappointed regarding the lack of an independent and international failure review committee.
O'Connor provides China Great Wall Industry Corporation with a failure review committee schedule modeled after an Ariane failure review plan, and urges China Great Wall Industry Corporation to allow J & H Marsh & McLennan to obtain failure review conclusions.
|February 28||J & H Marsh McLennan's O'Connor outlines for China Great Wall Industry Corporation minimum requirements for the Apstar 1A reinsurance program to continue.|
|March 11||Loral offers to provide technical assistance to the Intelsat 708 failure investigation.|
French underwriters state minimum requirements for
the Apstar 1A insurance program to continue.
J & H Marsh & McLennan's Masson identifies potential Independent Review Committee participants.
|March 21||Bermuda-based underwriter, ACE Limited, advises J & H Marsh & McLennan that China Great Wall Industry Corporation's actions regarding the Intelsat 708 failure investigation are unacceptable and that the Apstar 1A insurance contract is in jeopardy.|
|April 1||J & H Marsh McLennan's O'Connor reports that Intelsat declined to participate in the Independent Review Committee.|
|April 5||China Great Wall Industry Corporation reports to J & H Marsh & McLennan that an Independent Review Committee is being established to meet the insurance community's minimum requirements to insure the upcoming Apstar 1A launch.|
Introduction: The Market
1 Memorandum for the Record of Intelsat Document Review,
October 13, 1998.
CHAPTER 8 TEXT | CHAPTER 8 NOTES