Analysts at Autonomous said they do not expect the data centre trade to move the needle for the insurance sector, suggesting the opportunity set will add just ~1% to the overall commercial P&C market through 2030, despite the hype.
In a recent report, analysts at Autonomous estimate that new premiums across lines related to data centres will be worth $9 billion to $12 billion by 2030, which is significantly below other estimates.
Autonomous’ lower estimate is largely driven by significant coverage gaps, alongside re/insurers’ reluctance to underwrite exposure to some risks.
In addition, the super cycle is premised on trillions of dollars in capex being implemented over the next decade. However, Autonomous said it has started to see cracks in this notion, partly because of concerns over insurance coverage.
The report highlighted that re/insurers’ appetite is tepid for this asset class due to its elevated risk profile, with the new wave of anticipated data centres (hyperscalers) being much larger and more complex than previous versions.
Autonomous noted that hyperscaler sites are increasingly being built in regions prone to natural catastrophes, while losses related to fires remain a concern. There are also fears that a service interruption could lead to claims across multiple lines.
As a result, re/insurers are approaching this asset class with caution, especially in business interruption, due to the threat of accumulation and concentration risk.
Nonetheless, data centre capacity is expected to double in the next five years, with almost every commercial P&C line set to benefit.
Autonomous sees property and business interruption as the lines with the biggest long-term potential. However, analysts expect the opportunity in property to be smaller than current estimates due to the increasing use of probable maximum loss over total possible losses.
Currently, analysts believe the most interesting opportunity is in construction lines, given the stage of the data centre capex boom and the stronger re/insurer appetite for this area.
Autonomous stated that the re/insurers set to benefit most from the data centre super cycle will be those with strong balance sheets and established, diversified commercial books, particularly those with established construction books. Autonomous has identified Zurich, AXA, Allianz, Munich Re and Swiss Re as best placed to capitalise on this.
