About Emily Holbrook

Emily Holbrook is a former editor of the Risk Management Monitor and Risk Management magazine. You can read more of her writing at EmilyHolbrook.com.
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The Next Frontier of Risk: Space Debris

satellite

You may remember back in February 2009 when the Iridium 33 and Russia’s Cosmos 2251 satellites collided in orbit somewhere above Siberia. The crash of the two objects resulted in more than 600 pieces of debris larger than a tennis ball being strewn about in space, adding to what scientists and researchers call space debris or space junk.

The problem with the collision of satellites (many of which are non-working and have been abandoned in space to drift freely for eternity) is that it creates added debris in an already cluttered lower earth orbit, creating a hazard to operational satellites. The debris can also pose a threat to space stations — in March of last year, the crew of the international space station was forced to take cover in its escape capsule after learning that a piece of debris moving at 20,000 mph was heading towards them. Though the object missed the space station, it won’t be the last close call.

We covered space risk in our May 2009 issue, stating that scientists are concerned about the “dangerous and possibly irreversible cycle of wreckage.” The worst case scenario for the problem of space debris is known as the Kessler Syndrome (named after NASA scientist Donald J. Kessler), a scenario in which the volume of space debris in lower earth orbit is so high that the risk of further collisions increases to the point where launches become nearly impossible.

A space so cluttered with junk that the U.S. military (or any military for that matter), NASA or any weather, cable or GPS satellites cannot launch? Scary indeed.

The latest issue of the Economist explores the ongoing problem of space pollution, stating that:

At orbital velocity, some eight kilometers a second, even an object a centimeter across could knock a satellite out. According to the European Space Agency, the number of collision alters has doubled in the past decade.

But there are possible solutions to clearing the massive amount of space junk out there. The following are a few ideas put forth in the aforementioned article:

  1. Use ground-based lasers to change the orbits of pieces by vaporizing their surfaces. Apparently, the American armed forces claim one laser facility could complete the job in a matter of three years.
  2. Alliant Techsystems has proposed building special satellites enclosed in multiple spheres of strong, lightweight material. Debris that came into contact with the satellite would lose momentum and velocity with each collision. “As a bonus, many object large enough to cause damage would be shattered by the collision into fragments too small to cause serious harm.”
  3. Robots. That’s right — robots. Many space agencies are considering the option of sending robots into space to dock with dead satellites and fire rockets to either boost them into an uninhabited orbit or deorbit them completely.

Whatever these agencies decide, something should be done quickly to remedy the situation. For every day that passes, more space junk accumulates. Let us not come to realize the dreaded Kessler Syndrome.

From the August 21st - 27th, 2010 issue of the Economist.

From the August 21st - 27th, 2010 issue of the Economist.

Was a Bad Egg Behind the Egg Recall?

eggs

380 million eggs have now been recalled from an Iowa egg production facility in what some are calling the largest egg recall in history.

Unfortunately, as one of the nation’s top food safety advocates predicts, the outbreak will likely grow over the coming weeks. So far, close to 2,000 people have been sickened with salmonella from the bad eggs, with that number pretty much guaranteed to grow.

At the center of this massive recall is the family-run egg farm Wright County Eggs, based in Galt, Iowa. The owner of this company is Jack DeCoster, 75, who could be labeled a bad egg if one reads the litany of lawsuits and plant health violations he’s had filed against him in the past. Let’s take a look at two complaints:

One of the more egregious was filed in the summer of 1996 when DeCoster was made to pay more than $3 million in fines after the U.S. Labor Department found dead chickens being picked up by workers with bare hands. The complaint also stated that DeCoster’s workers also lived beside manure and rat-infested trailers, according to the Associated Press. The complaint led to a boycott of DeCoster’s eggs by several major supermarkets. In 2000, the Iowa attorney general dubbed DeCoster a “habitual violator” of the state’s environmental laws and ordered him to pay a $150,000 fine. DeCoster had failed to properly dispose of the hog and chicken manure and had let it run into a nearby creek.

Add to that the 10 counts of animal cruelty DeCoster pleaded guilty to in regards to his company’s treatment of its chickens. Then, in June, he was ordered to pay “more than $100,000 in fines and restitution, a ruling that is considered one of the landmark animal cruelty cases in history.”

In seems ironic that new egg safety rules were put into place July 9 by the FDA to help reduce the risk of salmonella outbreaks. This risk management proposition:

Addresses several aspects of egg production, particularly spots where chickens and egg production seem most vulnerable to infection by Salmonella enteritidis. While the new regs only immediately effect the largest of the nation’s egg producers, those producers also account for the overwhelming number of eggs produced.

The average person would say Wright County Eggs failed to successfully implement this, and other, risk management measures. The outcome for any company that fails in this aspect is, most times, lost earnings, lowered market share and tainted reputation. Not a good mix.

European Insurers Pass Stress Test

europe's health

A report published today by Fitch Ratings claims its stress-testing of European insurers based on their euro-zone sovereign exposures has resulted in no ratings actions. Fitch used the hypothetical scenario of a default on Greek government debt to carry out a stress test on its rated European insurance portfolio.

The agency believes that all companies in this portfolio would be able to withstand an external shock derived from a hypothetical Greek sovereign default, including an assumption of ancillary stress for other key euro zone nations.

And by “other key euro zone nations” Fitch is referring to the troubled economies of Portugal, Ireland, Spain and Italy, whose “sovereign risk may be a particular concern.” Taking this and other economic factors into concern, the ratings agency followed a two-step stress test process.

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First, Fitch identified insurers where sovereign risk may be a particular concern — those insurers with exposure to Greece, Portugal, Ireland, Spain and Italy.

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Second, the agency considered the impact of the implications of sovereign risk — meaning, they applied their stress test to selected companies/groups. Fitch considered the Greek default scenario from two perspectives: economic viewpoint and market value viewpoint.

Direct and indirect (realized and unrealized) investment losses are viewed by Fitch as the primary risks for insurers from sovereign debt. Any insurer rated above Greece’s current ‘BBB-‘ level should be expected to be able to cope with the impacts of a hypothetical Greek default scenario. This was confirmed by the outcome of the stress test: all selected companies/groups passed the test.

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Since Fitch believes the insurers in its portfolio can withstand the economic stress and the impact from potentially more severe mark-to-market movements, they have not taken any rating actions on its European insurance portfolio.

This good news comes on the heel of other optimistic European news that was publicized recently. After the European bank stress tests, only seven out of 91 banks were shown to need additional capital in a worst-case scenario — a shocking surprise. We must keep in mind, however, that these tests, though they consider deleterious situations, may not be rigorous enough and therefore, not the end-all be-all of the economic outlook.

Environmental Risk: Not a Hot Topic For Spain’s Businesses

spanish flagBack in May, the European Union’s environmental liability directive was officially put into place, exposing European risk managers to greater liabilities for environmental damage caused by companies that pollute as part of their normal business operations.

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But not all of the EU’s 27 member states are taking charge of their new responsibility. Spain, for one, has shown a lack of awareness when it comes to environmental risks, legislation and avenues of protection available.

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According to the Business Environmental Liability study, more than half of the 700 businesses studies in Spain did not have environmental liability coverage.

The survey also revealed that of those companies that said they had cover in place against environmental damage, only 10% had a policy that conformed to established regulations (Law 26/20071). Companies cited their multi-risk policy/financial guarantee, public liability and general business insurance policies as providing environmental risk protection. However, these products do not conform to the requirements of Law 26/20071 on Environmental Liability.

It seems apparent that many businesses in Spain do not fully understand the implications of the EU’s environmental liability directive. In fact, a whopping 65% of companies surveyed said they were unaware that the Spanish government has the ability to make it a requirement for these companies to have a fund, collateral or insurance to cover them from possible environmental damage.

Though numerous insurers jumped at the chance to offer environmental liability coverage to the EU market, a lack of demand has been evidenced from the beginning of the directive’s establishment.

Risk managers don’t seem to be “aware of how much of a strict regime is now in place and the cost of responding to that regime if you have a problem,” said Simon White, London-based environmental branch manager for XL Insurance.

Why is Spain a laggard when it comes to this topic? If the country’s businesses don’t get on board soon with the EU’s environmental liability directive, it will affect not only their bottom line, but also their reputation.

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