A new analysis from Lloyd’s global specialist re/insurer MS Amlin has revealed that 56% of the 670 planned US data centre projects representing nearly $800 billion in investment, are located in states that are highly exposed to either hurricanes, severe convective storms, earthquakes or winterstorms.
The research indicated that the current data centres located in states that are particularly vulnerable to severe convective storms (SCS) have an estimated value of nearly $20 billion, implying that the potential future AI infrastructure in areas prone to storms could be almost 40 times the worth of the existing facilities.
According to MS Amlin, just over half (51%) of planned US data centre projects worth $670 billion are located in states at high risk of severe convective storms.
In addition, MS Amlin also noted that 27% of data centres, representing $440 billion in investment, are planned in states at high risk of winter storms, which can disrupt power networks and create complex business interruption risks.
MS Amlin also observed that nearly a quarter (21%) of planned data centres, amounting to $340 billion of investment, are located in states at high risk of hurricanes, while data centres in high-risk earthquake states account for 3% of planned facilities, representing roughly $12 billion in investment.
Martin Burke, MS Amlin’s Chief Underwriting Officer, commented: “These numbers highlight both the opportunity and the risk. Hundreds of billions of dollars of new digital infrastructure are being directed towards regions at higher risk of potentially destructive severe convective storms. When assets of this scale cluster in hazard prone regions, the potential loss severity from a single storm event can rise very quickly. This is a growth opportunity for the specialty insurance market, but the risks must be properly managed and understood.”
MS Amlin also explained that the findings highlight the scale of investment flowing into states at risk of natural catastrophes as development of new hyperscale facilities shifts to southern regions where land and power are more favourable.
Burke added: “As AI investment accelerates, insurers must adopt more advanced ways to manage aggregation risk. If the industry is slow to address this challenge, it could restrict the deployment of capital and roll out of AI infrastructure.
“Our proprietary database of hundreds of US data centre projects lets us capture the risk not just from tightly clustered facilities but also from supporting infrastructure like power generation. This provides a far more accurate picture of overall exposure.”
Concluding: “This visibility allows us to deploy capacity responsibly to support the sector’s growth while maintaining underwriting discipline. The ability to monitor aggregation risk is becoming increasingly important as this class continues to grow.”
The data centre build out has also gained attention across the insurance-linked securities (ILS) market too.
We reported earlier this month, that two of the Lloyd’s syndicates operated by specialist ILS investment manager Nephila Capital are set to provide capacity support to a new property treaty consortium launched by MS Amlin, with data centre risk underwriting said to be a key focus for the new venture.
Data centre risk was also a key point of discussion during the SIFMA ILS conference in Miami earlier this year, where a panel discussed the topic of data centre risk and some of the considerations that need to be kept in mind as the ILS market looks at these potentially meaningful opportunities.
Furthermore, John Seo of Fermat Capital Management LLC, recently highlighted that as the data centre build-out continues to expand as an emerging field across the industry, it appears very likely that insurers, reinsurers and various organisations may turn towards catastrophe bonds to source risk capital for these facilities.
Read other Artemis articles about the data centre risk transfer opportunity for ILS here.
