In August of 2004 Sirius discontinued their in orbit satellite insurance. This is not a light decision to make. Satellite radio is dependent upon the satellites to deliver their product. A problem with a satellite would cause a disruption to the service that Sirius offers. Investors should be aware of the fact that Sirius does not carry in orbit insurance, but they should also be aware as to why that decision was made.
The decision was a business decision. “In Orbit” satellite insurance premiums have sky-rocketed in recent years. Not only have the premiums risen, but the items covered under such policies narrowed. Sirius, and several other companies began to take a closer look at the policies and the coverage offered under those policies.
Certain items such as “Acts of God” are not covered.
The riskiest part of satellite use is in the launch of the satellite and the setting of the orbit. After that, the first year will typically identify any problems that the satellites will have. One you get beyond the first year of use, the risk factors drop substantially.
Sirius already has a spare satellite on the ground. This satellite is already paid for. Sirius is also actively pre-paying for a launch vehicle. This means that Sirius is not operating “nakedly” with regards to the satellite issue. They have back-ups in place that are substantially paid for.
By pre-paying for the launch vehicle, Sirius has afforded itself the right to launch any time between now and 2010.
Should Sirius lose 1 of their 3 orbiting satellites, they can “tweak” things so that the down time is limited to about 6 hours in the middle of the night while they get the spare satellite launched.
There are several companies in the same situation as Sirius. Other companies have also opted to discontinue their In Orbit insurance. Sirius is not being a maverick with regards to this decision.
Sirius likely saves about $6,000,000 per year by electing not to purchase commercial insurance for their constellation. A new satellite runs about $150,000,000.
Here is a link that discusses the satellite insurance issue. http://www.solarstorms.org/Sinsurance.html
The satellite insurance issue is complex. Yes, there are risks involved, but they may or may not be as substantial as people think. The key is in understanding the whole issue.
Sirius has disclosed that there have been some circuit failures on their satellites. These failures have not compromised Sirius’ ability to offer their service, and the satellites are expected to run their full operational life of about 15 years. The satellites were launched in late 2000 and thus are expected to last until 2015.
The link to this write up is - http://satellitestandard.blogspot.com/2006/03/satellite-insurance.html
This write up contains opinions on issues as well as factual data. Readers of this are fully encouraged to conduct their own research into this issue. The opinions contained in this document are the sole opinions of the writer, and do not reflect the sentiments of any companies an/or industries discussed.
3/26/2006 10:49:00 PM
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