Euler ILS Partners sees $1bn fund opportunity for data centre sidecar risk: Bloomberg

Euler ILS Partners, the specialist Swiss insurance-linked securities (ILS) investment manager, sees a $1 billion fund opportunity based on quota share’s to support insurance risk transfer capacity for the data centre build-out, according to reporting from Bloomberg.

The publisher has interviewed Niklaus Hilti, Chief Investment Officer of Euler ILS Partners and said the company is targeting launch of a fund dedicated to assuming risk from data centres, while the goal will be to deliver double-digit returns to investors.

Hilti told Bloomberg that Euler ILS Partners is planning to partner with an insurer to underwrite the specialist policies covering elements of risk related to data centres.

Euler ILS Partners has already received indications of interest from investors, while a fund could accommodate $1 billion in capital, for what would be an institutional, co-investment strategy it is reported.

Hilti explained it could be the first dedicated ILS market product specifically focused on data centre risk.

The plan is to structure it as a sidecar, with underlying quota shares to supply a portion of the risk to the structure, which would also provide alignment with the insurer writing the risk.

Hilti called it a “historic opportunity” for the ILS market.

Interest in the data centre risk transfer opportunity is building in the ILS market, although with differences in focus as to how to structure arrangements that can channel institutional risk capital to support the insurance capacity needs of what is seen as a potential multi-billion source of new premiums.

In the same Bloomberg article, Joe Peiser, chief executive of risk capital at broker, said that the first catastrophe bond covering data centre risk could to be issued as soon as in the next 12 months, with the sponsor likely to be a reinsurance company.

That would see a reinsurer seeking retrocession for the natural catastrophe risk exposures it is aggregating by writing reinsurance covers for insurers writing the data centres, we assume.

Hilti’s concept suggests a partnership with a major insurer and a way to source the risk in an aligned manner, from the underwriting source.

Hilti noted expertise in writing complex risks and sourcing institutional capital to support them, such as energy sector structures his team had launched following the Deepwater Horizon disaster, resulting in 18% to 24% returns at the time.

These new digital infrastructure construction projects and their ongoing risk management and risk capital needs are certainly gaining attention in the insurance-linked securities (ILS) market.

The volumes of risk capital needed are meaningful, while the exposures will in certain cases be suited to the investors that back other ILS funds and products.

Development of concepts are ongoing and it seems some are in detailed conversations about how to bring efficient risk capital to the opportunity, in a variety of forms.

Read other Artemis articles about the data centre risk transfer opportunity for ILS here.