*Chapter 8
Contents*
**Insurance
Aspects of** the Long March 3B-Loral-Intelsat 708 Failure
**The
Formation of the Independent Review Committee**
**The
April 15-16, 1996 Insurance Meeting in Beijing**
**The
Space Insurance Industry's Involvement in the Release of the Independent
Review Committee's Interim Report**
####
*Chapter 8
Summary*
he space insurance aspect of the Intelsat
708 launch failure focuses on the exchange of controlled technical
information within the insurance community. Insurance underwriters and
reinsurers for the Apstar 1A satellite program - the next scheduled
satellite to be launched on the Long March 3B after the Intelsat 708
failure - were concerned about the reliability of the Long March rocket,
and the fate of future launch insurance programs in the PRC.
**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.**
*Chapter 8
Text*
THE ROLE OF
COMMERCIAL SPACE INSURANCE IN TECHNOLOGY TRANSFER TO THE
PRC
## Insurance Aspects of the Long March
3B-Loral-Intelsat 708 Failure
he Intelsat 708 satellite was destroyed in a Long
March 3B crash on February 15, 1996.1 It was the second in a series of
nine Intelsat satellites for which International Space Brokers was the
sole insurance broker.2
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:
**ï¿½ U.S. Aviation Insurance
Group**
**ï¿½ AXA Reinsurance
Company**
**ï¿½ La Reunion Spatiale**
**ï¿½ AGF Reassurances**
**ï¿½ Reliance Assurances**
**ï¿½ The Sumitomo Marine &
Fire Insurance Company, Ltd.**
**ï¿½ Great
Lakes9**
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:
*At issue are the agreements regarding commercial satellite
launches negotiated by the PRC and the U.S. in January 1989 which deal
with trade issues and market entry, technology * safeguards, and
liability.
*Under these agreements introductory or promotional prices are
allowed for the first or, in extraordinary circumstances, the second
successful commercial launch of a new launch
vehicle.11*
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:
*There is an unreasonable and unacceptably high technical and
safety risk in proceeding with additional [Long March 3B] launches of
Intelsat spacecraft until [China Great Wall Industry Corporation] has
accomplished a sufficient * number of successful operational launches
of the vehicle demonstrating a reliability equal to other major
providers of launch services to Intelsat." 19
Intelsat has not used a PRC rocket since the failure of the Long March
3B carrying Intelsat 708.
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 Formation of the Independent Review
Committee
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:
*We should strongly recommend to implement an independent inquiry
board. As far as I know from various information release [sic], Chinese
have formed three committee[s]: oversight committee, investigation
committee, and the failure investigation and analysis group.*
*All of them are strongly linked to Chinese industry.*
*The message that we shall send them, is that their credibility
* is at stake and without any international independent inquiry board
we don't give them much chance of success. Everyone I discussed with are
very strong on that point. This is the way that Arianespace is doing
each time.
*I will send you by separate mail some input from previous Ariane
failure inquiry board[s]. This information is confidential, however.
[S]chedule quick very quick help to form it.25*
**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:
*ï¿½ "Receive fully detailed
information concerning the very root cause(s) of the [Intelsat 708]
mission failure and the solutions"*
*ï¿½ "Receive the advice of an
independent organization concerning the analysis of the failure, and the
solutions set forth by China Great Wall Industry Corporation
"*
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:
**ï¿½ Representatives from 11
reinsurers**
**ï¿½ J & H Marsh &
McLennan**
**ï¿½ China Great Wall Industry
Corporation**
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):
*The Underwriters do not believe that the limitation of the IRC
[Independent Review Committee] to one body constitutes a problem. The
SS/L [Loral] capability and expertise in the field of launch vehicles
[rockets] constitute[s] an issue, however.*
*The integrity of Loral and its expertise in the satellite system
and launch vehicle interface design is well recognized, but the lack of
clear and recognized launch vehicle expertise will put in question the
validity of Loral's conclusions, however. This limitation constitutes a
problem for the French Underwriters.*
*In [sic] the other hand, Tim Wright has questioned other European
Underwriters. The reaction he got from the leader Munich Re is opposite
to the French position. This limitation is acceptable providing that the
expertise of each member of the Loral team is clearly
identified.*
*We have now three Underwriters with a negative position against
one Underwriter. To solve this problem, we have investigated with the
French Underwriters if there is other option.*
*The ideal option for these Underwriters is to have an IRC that is
formed by individual people who have an expertise in the launch vehicle
system well recognized by the space industry.*
*This type of committee set up is ideal for Underwriters because it
insures the expertise of the IRC and its independence. It should be
noted that all independent failure reviews for western launch vehicles
are constituted with individual people and not by company or
organization as Intelsat.*
*Ideally the committee should be formed with four people, two from
Europe and two from USA. The member[s] should not have an active
position in the space industry but should be retired senior members.
Their expertise should be recognized by the space industry and space
insurance leaders . . . .*
*We recommend to create the IRC with Loral people and try in
parallel to add two or three individual members to the IRC. In this
condition, if we are not able to add more members we will have a lowest
requirement satisfy [sic] for the meeting. However, if we succeed to add
the individual members, we will constitute a perfect IRC.*
*If a decision is taken to follow this recommendation, we can
quickly set up and submit a list of individuals who could be approached
to become a member of the IRC. We have already identified some
individuals in France who are potential members. The reason we are
limiting our list to French experts, is that France is the leader in the
Ariane program with more than 60%. Most of the experts in launch system
are in France.*
*In order to succeed, it is very important that we react very
quickly. The IRC should be formed in 2 or 3 days, no more. We can offer
a full support here in Paris to help to identify and approach the
selected individuals if it becomes necessary.*
*After having setup the IRC, we will need to define the mission of
the IRC and prepare an action plan so that the IRC could formulate a
conclusion for the meeting in Beijing.*
*We think necessary that the IRC shall gather in Beijing for one
week to assess the work performed by the different failure review
boards.*
*One important key to the success of the IRC, is the full access to
the information and data.36*
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:
*The rushed invitation to attend the failure briefing confirmed to
us that CGWIC [China Great Wall Industry Corporation] is not pursuing
proper due diligence following a loss.*
*Consequently, we firmly believe that concurrence by Intelsat of
the cause and correction of the failure is paramount.*
*In the event the information is incomplete and/or not fully
[reviewed] by an independent party, ACE Limited will have no alternative
but to cancel its participation [in the Apstar 1A
syndicate].39*
**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 reinsurers have stated that the IOC's [International Oversight
Committee, i.e., the IRC] review of the failure investigation is a
mandatory item to be implemented before the technical briefing.*
*Reinsurers are asking what is the status of Intelsat in the IOC. J
& H has to provide reinsurers with a firm and final explanation,
tomorrow, Tuesday, April 2 so we can ask APT to coordinate a response
through CGWIC [China Great Wall Industry Corporation] . . .41*
*There is no doubt about the launch agency's capability to meet the
deadlines for the preparation of materials and formation of an
independent international oversight committee but APT is lock and load
on going ahead at this time due to absolutely strict project and
financial timelines. APT has zero tolerance to further
delays.42*
The following day, April 2, 1996, O'Connor again wrote Professor Bao
Miaoqin:
*IOC we have received further inquiries from reinsurers today
about the status and membership of one IOC. To date, we have not
received any notification from CGWIC [China Great Wall Industry
Corporation] on this matter and wish to remind the parties of the
serious nature of this matter.*
*We have not been authorized by CGWIC to approach the European
candidates for the IOC membership. This matter must be settled as a
matter of urgency it cannot be delayed until April
9.43*
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 upcoming Apstar-1A. Masson wrote to O'Connor:
*The UWs [underwriters] will be very critical in their assessment
for two reasons:*
*a) The previous failures of the [Long March 2E rocket] didn't
leave a good souvenir [sic] in the UW mind. The failure reviews were not
conclusive, there was no verification by an International Oversight
Committee (IOC) and although the two last flights were successful,
nobody was able to demonstrate why the flights were successful. Most of
the UWs will let no chance to approximate conclusion. UWs are saying
that for the first failure they were flexible, for the second failure
they were less flexible but they gave a last chance. Now for the third
failure, there is no place for any flexibility.*
*b) The first element from the review board show clearly that the
failure affects a single point of failure. Most of the main Western
launchers (Ariane, Delta, Atlas) have a redundant Inertial platform.
Single point of failure is not acceptable for western specification but
there is some provisions to cope with them. Either you remove it or you
demonstrate without any doubt that your reliability level of your unit
is such that it is acceptable compared to the overall system
reliability. Because it is out of the question that CGWIC [China Great
Wall Industry Corporation] and CALT [the China Academy of Launch Vehicle
Technology] soon add a redundant Inertial Platform, we have to deal with
the second option. UWs will be very serious about the way CGWIC and CALT
addresses this single point of failure.*
*From the above reasons, we can define the minimum set of
requirements needed to ensure a reasonable chance that UWs are
confirming their commitment:*
*1) The Preflight meeting shall provide clear conclusions which are
subject to no controversy. These conclusions shall be supported by a
detailed and clear demonstration. The level of the conclusion shall be
enough to support an isolation analysis for the [Long March 3]. This
last point means that it will be acceptable to UWs to wait for the [Long
March 3B] recovery plan, but it is out of question that all causes are
not identified and demonstrated for the [Long March 3] isolation
analysis. In other words, saying that the electrical motor is the cause
of the problem is not enough. We shall know why the motor
failed.*
*2) The isolation analysis will be of key analysis. UWs are not
expecting to listen [to] a set of arguments telling that the two
platforms are different and that [Long March 3] platform has flown more
than thirty times. This is a single point of failure and this type of
argument is not acceptable. If it appears that the electrical motor is
the most probable cause of failure, then the same problem could happen
to the [Long March 3] platform. UWs are expecting a detailed reliability
analysis demonstrating what is the real level of reliability of this
platform. I think however that such analysis does not need to be
finished for the Preflight meeting in Beijing. At this meeting CGWIC and
CALT shall show that such study is underway and that its conclusions
will be ready soon (2 to 4 weeks) and in any case before Apstar-1A
launch. UWs will then subject their commitment to satisfactory
conclusions. We shall take some provision in the planning to let the UW
to review this analysis (1 week).*
*3) Just after the news of the failure of the flight Intelsat-708
was made public, the UWs required the setting up of an IOC (Independent
Oversight Committee) [that is, the IRC]. This is a common practice for
any failure with any western launch vehicle failure, but because there
was no IOC to provide any conclusion for the previous flights' failure,
UWs made strong comments that one condition before they agree to any
conclusions, is that the work of the failure review board being reviewed
and agreed by an IOC. The composition and the mandate of this IOC should
be subject to UWapproval. The UWs understand very well that it is not
possible that the IOC will [have] proved their conclusions at the
pre-flight in Beijing March 15, 16. The time available is not
sufficient. However, as a minimum condition, they want to see that the
IOC has been formed and that the mandate has been officially defined.
Furthermore they will request that the IOC conclusion to be known before
the launch of APSTAR-1A for they [sic] review. UWs expect a clear
commitment from the Chinese official[s] which guarantee[s] that whatever
the conclusions should be, the IOC will be free to publish their
conclusion. UWs expect with the forming of the IOC a sign of openness
from CGWIC and CALT.45*
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 J & H Marsh
& McLennan Beijing office was instructed to act as a liaison for
continuing communication with China Great Wall Industry Corporation
officials in this regard.
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:
**ï¿½ That it be created with a
defined mission prior to the April 15 and 16, 1996, insurance
meeting**
**ï¿½ That its membership be
independent and international, with unrestricted review
authority**
**ï¿½ That the final report be
published and reviewed by reinsurers prior to the launch of
Apstar-1A48**
On April 4, 1996, O'Connor wrote Professor Bao Miaoqin:
*We understand that Intelsat has declined to participate in the IOC
[i.e., IRC]. Yet, to date, there has been no announcement by CGWIC
[China Great Wall Industry Corporation] on this issue. A formal
announcement should be made about this matter and a satisfactory
replacement for Intelsat must be found as a matter of
urgency.49*
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
## The April 15-16, 1996 Insurance Meeting in
Beijing
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 Industry
Corporation, J & H Marsh & McLennan, and other insurance
companies attended the meeting.
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:
*The briefing went very well and we have a great result, the
Apstar-1A satellite has been approved for shipment to the launch site,
ready for launch. Final launch approval will be provided when a number
of action items are completed, mostly, conditions precedent for the
launch approval. All are skeptical of [China Great Wall Industry
Corporation]'s ability to deliver, especially on time, but there's
always a first time . . .*
*Underwriters are no longer cynics, but have a cautious optimism
for the ability of the Chinese to improve their game.*
*International review committee has been established, chaired by an
SS/L guy, Wah Lim.68*
On April 23, 1996, an information release by China Great Wall Industry
Corporation noted:
*Representatives from Hughes and Apstar-1A reinsurance program were
jointly invited by China Great Wall Industry Corporation (CGWIC) and APT
Satellite Co., Ltd. (APT) to participate in the Apstar-1A Pre-Flight
Technical Briefing held in Beijing from April 15 to 16, 1996 . .
.*
*Prior to the meeting, an Independent Review Committee (IRC)
constituted by specialists from international space industry had already
been set up by CGWIC. Independent review of the [Long March 3B] launch
failure investigation will be performed by the IRC. IRC members were
invited and some were able to [be] present [at] the 2-day
meeting.69*
## The Space Insurance Industry's Involvement
In the Release of the Independent Review Committee's Interim
Report
J & H Marsh & McLennan's Vice President Timothy Rush says that
his firm's office in Washington, D.C. did not receive the Independent
Review Committee report, nor had anyone at that office reviewed it.
Insured parties are required to provide underwriters with claim-related
information, but Rush says that underwriters were not provided with the
Independent Review Committee report in the Intelsat 708
case.70
Richard Hewins, then Chairman of J & H Marsh &
McLennan's Space and Telecom Group, says he does not recall reviewing the
Independent Review Committee report of the Long March 3B-Intelsat 708
failure, although he recalls seeing it come across his desk in the spring
of 1996. Hewins says he does not know what happened to the report and does
not recall the process by which he obtained it.
Furthermore, Hewins does not recall whether the report was distributed
to other J & H Marsh & McLennan offices, although he says that it
may have been sent to Jacques Masson in the J & H Marsh & McLennan
office in Paris, and to the firm's London office. Hewins does not recall
any discussions with underwriters or re-insurers after the Intelsat 708
failure.71
**On May 7, 1996, J & H Marsh
& McLennan's Vice President Paul O'Connor advised Professor Bao
Miaoqin of the PRC-controlled Asia Pacific Telecommunications Satellite
Co.: "It is in APT's best interests that the interim IRC report be
released** by J & H Marsh & McLennan to Asia Pacific
Telecommunications Satellite Co.'s reinsurers first, before China Great
Wall Industry Corporation releases it to other customers and
underwriters." 72
On May 13, 1996, O'Connor wrote to his colleague at J & H Marsh
& McLennan, Diane Dwyer, that: "Lim has approved release of the IRC
interim report to J & H Marsh & McLennan so we can release this to
all non-PRC reinsurers. Asia Pacific Telecommunications Satellite Co. has
agreed with this as well. The report will be delivered to our office
today. Nick [Yen] will be faxing a copy of the 30 page key part today . .
. ." 73
On May 13, 1996, O'Connor advised Yen:
*We understand the release of the report is subject to the
restrictions on use contained in the export regulations affecting the
satellite and the IRC's review of the failure investigation. J & H
undertakes to release copies of the report only to organizations or
individuals of subscribing countries.*
*J & H further undertakes not to release a copy of the report
or any extracts to PRC nationals or organizations, or to
APT.74*
On May 13, 1996, Loral's Dr. Lim contacted O'Connor:
*Attached please find a copy of the IRC's Preliminary Report
regarding the investigation of the [Long March 3B] launch failure and
the [Long March 3] isolation evaluation. This report is currently under
the review of our legal consul [sic] and the U.S. technology export
panel.*
*Prior to obtaining the proper export license, the IRC was advised
that this report can be used strictly only by the U.S. companies and
European companies as long as they are registered within the ITAR member
countries.*
*This report will not be delivered to [China Great Wall Industry
Corporation] and its launch service agencies until the export license or
an equivalent authorization is obtained.75*
On May 14, 1996, Franceska O. Schroeder, an attorney for J & H
Marsh & McLennan, advised Loral's Lim:
*Paul O'Connor of Johnson & Higgins Space & Telecom Group
has asked me to contact you regarding the proper procedures for
releasing the interim Independent Review Committee (IRC) Report dated
May 10, 1996.*
*I understand from Mr. O'Connor that in a communication from you to
him dated May 13, 1996, you explain that the Report currently is under
review by the "U.S. technical export panel." You further explain that
the IRC has been advised that prior to obtaining proper export licenses,
the Report is to be used "only by the U.S. and European companies" that
are "registered within the ITAR-member countries."*
*Because we do not know the identity of the "ITAR-member countries"
to which you refer or the specific export control requirements imposed
by the U.S. government relative to this project, we have advised Mr.
O'Connor not to release the Report until we clarify with you how to
proceed.76*
On May 14, 1996, J & H Marsh & McLennan's attorney Schroeder
communicated to her clients O'Connor and Dwyer:
*[T]he ITAR [International Traffic in Arms Regulations] governs the
export of certain sophisticated U.S. communications satellites and
associated technical data. This means that any such satellites and
technical data may be exported or exported only pursuant to a license
issued by the U.S. Departmentof State.*
*Even if the phrase "ITAR-subscribing country" was replaced with
"Missile Technology Control Regime (MTCR)-subscribing country" (I have
the list of such countries) a U.S. license still would be required for
the export of ITAR-controlled satellites and technical data.*
*The U.S. satellite manufacturer usually bears the responsibility
for obtaining such a license[s].77*
**On May 14, 1996, Loral's Yen
reported to J & H Marsh & McLennan's O'Connor: "The IRC may
require a technical export license** for the subject matter which may
result in an [sic] revised version in wording. However, the technical
contents and assessment in the report as faxed in this package remain
valid." 78
On May 31, 1996, O'Connor advised China Great Wall Industry
Corporation:
*[T]he US State Department has issued a formal decision that the
release of the IRC Interim report is not allowed and that the IRC's
chairman, Dr. Wah Lim[,] is no longer allowed to offer public comment on
the report or its contents.79*
In June 1996, Masson of J & H Marsh & McLennan's Paris office
wrote his firm's O'Connor:
*The discussions with the French underwriter, LRS [La Reunion
Spatiale] and AGF [AGF Reassurances] were very lengthy and difficult. As
you might know, the main problem is the IRC report availability and we
had to try to find a compromise. The French do not appreciate the
decision from the US government, and most importantly because France has
signed the ITAR agreement with the US.*
*The main spirit which prevails is that [the PRC-controlled Asia
Pacific Telecommunications Satellite Co.] shall not pay for the
political dilemma and to some extent, that since J & H has made a
great effort to solve the problem, it should be not fair that J & H
should pay as well.*
*Any decision taken by the Underwriters will be highly political
and commercial.80*
**On June 5, 1996, Masson, on
behalf of the French insurance community, proposed a way in which to
circumvent U.S. export policy** regarding the release of the Independent
Review Committee:
*Some of the IRC members are European and to that extent they could
be approached directly without going first through US officials.*
*My recommendation will be that [the China Academy of Launch
Vehicle Technology] and [China Great Wall Industry Corporation] which
mandated the IRC, asks to one or all the European IRC member to sign
this certification. The certification shall state that the IRC member
certifies that the conclusion of the IRC interim report is not in
disagreement with the conclusions of the report RA1-3-4 on the [Long
March 3 and Long March 3B] isolation analysis.81*
On June 6, 1996, Lim advised O'Connor:
*I have been instructed by our legal counsel to retrieve all
IRC-generated documents which the IRC has transmitted to you by fax,
express mail or by distribution at any meetings.*
*In addition, please confirm that no derivative copies of these
documents were made or distributed, or that any such copies have been
retrieved and returned to us.*
*The above is necessary to comply with U.S. Government
requests.82*
On June 19, 1996, Dwyer reported to Lim:
*[W]e have gathered all photocopies and all documents relating to
the Independent Review Committee's Interim Report. They are being
shipped to you by Airborne Express overnight courier
service.83*
Included in the package were 22 copies of the Report, copies of all
correspondence relating to the release of the Report and the decision not
to release the Report, and copies of all correspondence relating to the
need to return all copies. |