In addition, satellite insurance rate increases are directly linked to a growth in claims, industry analyst Futron says in a research paper released Wednesday.

Satellite insurance rates are affected by several factors, primarily the levels of anomalies, or malfunctions, in the operation of a satellite. While anomalies occur every day within the global satellite fleet, it is severe anomalies resulting in a total or partial inability for the satellite to perform its mission that can trigger an insurance claim.

Thus, satellite insurers are very sensitive to any increase in satellite anomalies, which can be a leading indicator of decreased satellite reliability.

However, the situation surrounding the increase in satellite anomalies is complex. Many factors have contributed to this increase, only some of which are directly related to satellite reliability.

A sentiment exists in parts of the satellite manufacturing community that the satellite insurance industry has overreacted to the increase in anomalies. The recent insurance rate increases have affected the already-thin profit margins associated with satellite manufacturing and, in some cases, jeopardized the economic viability of certain satellite ventures.

The satellite insurance industry argues that it is simply correcting a situation that produced large losses. If not for this correction, insurers would be forced to abandon the satellite industry for more favorable markets.

There are elements of truth in both positions, and Futron does not take sides in this White Paper. Instead document attempts to clarify some of the issues through an objective analysis of satellite insurance, reliability, and performance.

This White Paper also includes a technical analysis of the range of anomalies experienced in recent years, and puts this in the context of the increased number and complexity of satellites launched.

Futron's primary findings include:

• In the last four years, space insurance rates have risen by 129%.
• In the last four years, major on-orbit anomalies have risen by 146%.
• There has been a significant increase in the number of GEO commercial communications satellites and the on-orbit population of such satellites doubled between 1996 and April 2002.
• Technical complexity of satellites has increased significantly over the last five years. For example, the average payload power almost tripled from 2.3 kW in 1996 to 6.3 kW in 2001.
• The anomaly rate of new satellites is relatively high in the first two years of a satellite's life, then drops dramatically and continues to decline thereafter.
• Satellite manufacturers are implementing stringent quality control standards in the design and manufacturing process.