The rapid buildout of hyperscale data centers is creating tens of billions of dollars of concentrated physical assets — and an insurance challenge that traditional markets may struggle to handle on their own.
The soaring value of data center assets, which are increasingly concentrated in regions exposed to hurricanes, floods and other natural disasters, has underscored the need for insurance coverage.
CAT bonds, or catastrophe bonds, could provide insurers and reinsurers with a way to offload some of that risk to capital market investors over the coming months, industry experts told CNBC, although the market is only just starting to take shape.
"The honest answer is that not a single dollar of data center risk has come to the cat bond market yet," said Ethan Powell, principal and chief investment officer of Brookmont Capital Management, a Texas-based firm with more than $1 billion in assets under management.
"What's happening right now is one layer upstream, through quota shares, sidecars and new reinsurance facilities, as reinsurers wrestle with how to price data center risk and find enough capacity to cover it."