Annual investment in data centers could exceed $300 billion by 2027, offering a major growth opportunity for the global insurance and reinsurance sector. This is what emerges from an S&P Global report on the sector, which shows that the growth of investments in new and larger projects offers a varied set of insurable risks.
Boom in investments in data centers
S&P estimates annual data center investments could exceed $300 billion by 2027. Larger infrastructure construction projects may require large insurance coverage caps of $5 billion to $10 billion, but S&P believes some hyperscale data centers represent total insurable values of $10 billion to $30 billion for construction alone.
These projects involve a complex ecosystem of hyperscalers, developers and builders, service providers, equity investors and, increasingly, public and private lenders, each with their own insurance needs. This represents a huge growth opportunity for reinsurance companies participating in these projects with their ad hoc insurance coverages.
But there are insurable value constraints
Growing demand for data center insurance coverage could generate $10 billion in new premiums in 2026. However, capacity constraints exist, which will limit the industry’s ability to fully insure these hyperscale projects, as the exposure (20-30 billion) far exceeds the construction value.
“We expect capacity constraints to limit the industry’s ability to fully insure these hyperscale data center projects, as total insurable values reach $20-30 billion per location,” explains Charles-Marie Delpuech, an analyst at S&P Global Ratings.
The choices of companies and the impacts on ratings
S&P therefore expects insurance and reinsurance companies to increase their capacity to meet demand from hyperscale projects. However, no single insurer will be able to absorb the risks alone. As a result, the market will increasingly rely on collaborative structures organized by a particular insurer or insurance broker, where multiple insurers and reinsurers work together to share risk.
“How reinsurance and insurance companies manage concentration and aggregation risk due to the co-location of high-value assets and the interconnectedness of risks through the presence of multiple stakeholders will be a key element in our credit rating analysis,” emphasizes the S&P analyst, adding “we believe that reinsurance companies have started the year in a strong position and we do not expect any impact on ratings in the near term, as the size and limits of risks under management remain relatively modest. Nonetheless, increasing insurance coverage limits and underlying exposures merit careful consideration.”
