Data centre boom could drive captive growth, claims Fitch

The rapid expansion of data centres could provide a significant new growth opportunity for the captive insurance market as businesses seek additional capacity for increasingly large and complex exposures, according to Fitch Ratings.

Speaking during a presentation at the Monte Carlo Rendez-vous earlier this week, Fitch’s head of EMEA reinsurance ratings Manuel Arrivé said that data centres represent a major growth opportunity for the re/insurance sector as a whole.

However, he warned that the scale and complexity of the exposures means capacity will have to come from across the market, with captives likely to be called on, as well as other alternative sources such as sidecars, catastrophe bonds and primary insurers.

“The potential is huge. But also the risks are there,” Arrivé said. “There’s accumulation risks leading to modelling risk, and reinsurers tend to be cautious at this stage.”

The subject came up several times in the presentation’s Q&A section, following a report published by Swiss Re Institute on Saturday estimating that global insurance premiums associated with data centres could reach $91 billion by 2030.

Asked whether reinsurers could handle the scale of risk associated with data centre development, Arrivé said it was an area the ratings agency would be looking closely at as the growth develops.

“We have to be humble with these kinds of reviews because things change quickly,” he said. “The scale of it is increasing all the time, and it’s also difficult to see where the capital and the financing is coming from for these large projects. So, it’s something as an agency we’re looking at again.”

He highlighted in particular how data centre premium growth was one major factor that could support greater use of captive reinsurance against the backdrop of market softening making risk retention less attractive for captives in other areas.

“The large need for reinsurance in that area could favour the development of captives, even with just the scale of the investments and the scale of the need for reinsurers,” he said.

Despite the challenges, Fitch expects the re/insurance industry ultimately to develop solutions for the exposures.

“The industry will adapt, like they did during jumps in technology or for nuclear plants as well,” Arrivé said. “They faced the same challenges, and they managed to fill the gaps.”

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