Hyperscale data centres push beyond traditional insurance limits
S&P Global Ratings has released a new report that examines how the growing insurance gap for hyperscale data centres is reshaping how these mega-projects are financed.
According to S&P insurance markets are adjusting to a step change in asset scale, as hyperscale data centre campuses can extend into the $20 billion–$50 billion total insured value range during the construction phase alone, well beyond traditional single risk benchmarks.
As a result, who bears the residual risk will become increasingly important. As capital investment pushes projects beyond traditional fully insurable frameworks, insurance may no longer be assumed to fully mitigate tail risk. An integrated view across insurance, project finance, and corporate balance sheets will become central to assessing credit risk.
S&P said that some of the key takeaways from the report include:
• As capital spending to build hyperscale data centre campuses reaches tens of billions of dollars per site, full insurance coverage may no longer be possible when compared with traditional data centres.
• This insurance gap could increasingly function as a capital- structure constraint, where available coverage supports the portion of asset value lenders may view as recoverable in downside scenarios.
• With insurance programs structured through probable maximum loss or maximum foreseeable loss-based and layered programs that may only cover part of the total project value, a larger share of tail risk may be shifting into financial structures.
• As a result, assessing the underlying risk of these mega infrastructure projects is increasingly complex for market participants and may currently be underappreciated, given evolving and non-standard insurance frameworks and the growing migration of tail risk into financial structures for data centre lenders.
To get a copy of the report contact S&P.
