A team of former Credit Suisse bankers is preparing to launch a fund they say will offer double-digit returns in exchange for taking on some of the insurance risk tied to data centers.
Euler ILS Partners, an alternative investor formed through a 2024 management buyout of Credit Suisse Insurance Linked Strategies Ltd., is in the process of teaming up with an insurance company to underwrite specialist policies, Chief Investment Officer Niklaus Hilti told Bloomberg. Euler, which has already received initial signs of interest from investors, is targeting about $1 billion in capital for the co-investment, institutional fund, he said.
It would be the first time a product in the market for insurance-linked securities specifically targets data-center risk, according to Hilti. Euler plans to structure the vehicle as a so-called sidecar, meaning investors will take a quota share of an insurer’s risk. Returns are expected to be above 15%, Hilti said.
“This is an historic opportunity for the insurance-linked market,” he said.
ILS products have so far tended to focus on the impact of natural disasters on residential property, with catastrophe bonds gaining in popularity in recent years. Issuance of cat bonds has soared — growing about 24% last year — as insurers increasingly look for ways to offload part of the risk on their books to the capital markets.
As hyperscalers continue to build out data centers to power growth in artificial intelligence, the insurers agreeing to provide coverage now face a new era of risk. According to S&P Global, total insurable values for a single data center are expected to reach up to $30 billion per location, compared to $10 billion for some of the world’s biggest bridges. Against that backdrop, ILS investors are looking to capitalize on the insurance gap that’s likely to emerge.
“There are quite a number of ILS investors who have approached us about how they can participate in this market,” said Joe Peiser, chief executive of risk capital at insurance broker Aon Plc. He expects the first catastrophe bond for data centers to be issued in the next 12 months, with the risk transfer coming from a reinsurer’s portfolio.
Dean Klisura, president and executive officer of Guy Carpenter, said on a recent earnings call that the reinsurance broker’s clients “now are talking about issuing cat bonds and leveraging third-party capital to write more data center business,” which indicates that there are “more diverse new business opportunities than we’ve seen in several years.”
