Leigh Harris

So these are a way for insurers to tap alternative sources of capital when they're pretty full on the amount of risk they can take financially.

So they've done this extensively in Florida, where insurers have kind of filled up their capacity to cover the billions of dollars of potential losses from a massive hurricane.

And now they're looking at doing the same thing with data centers.

They're saying, hey, we can insure these massive data centers.

tens of billions of dollar projects up to a point, but we're not sure that we can give full coverage for the potential losses that a single data center could incur.

And so they're turning to bond market investors to take on some of that risk.

And how does this work for the people who buy these bonds?

So investors in cap bonds get paid a yield, and often that's pretty high to compensate them for the relatively high levels of risk, continuously until the bond is triggered.

The bond could be triggered by...

a large claim such as a natural disaster hitting a data center or even a large power outage or water supply outage.

And at that point, they could lose some or all of their money.

Insurers are basically hitting the limits of the size of the policies that they can sell to data centers and to investors in data centers because these projects are so massive and so valuable that insurers are concerned they can't provide full coverage for a payout that could range into the tens of billions of dollars.

So they're looking to diversify the capital that they're bringing in to help supply additional capacity to backstop potential losses.

Well, I think the insurers would say they're turning to the cap bond market to offload some of the tail risks, the kind of worst case scenario losses that these facilities could face.

And they would also say, hey, we're familiar with insuring property, big infrastructure projects.

This is our bread and butter.

I think where they might face a little more skepticism is the data center build-out is so huge in terms of value.

And it also does present some unique risks like cooling these massive facilities, keeping the GPUs, the chips inside them, cool, ensuring that they can run efficiently.

99.999% of the time, continuously and without interruption.

Those are new and distinctive business risks that they're just wrapping their heads around how to insure.