CAT Bonds May Help Insure Data Center Risk, Industry Experts Say

According to CNBC, the rapid buildout of hyperscale data centers is creating tens of billions of dollars in concentrated physical assets and an insurance challenge that traditional markets may struggle to handle alone. Industry experts said catastrophe bonds, or CAT bonds, could help insurers and reinsurers transfer some of that risk to capital market investors over the coming months, though the market is still in its early stages. Ethan Powell, principal and chief investment officer of Brookmont Capital Management, said no data center risk has yet reached the CAT bond market, but he expects the first dedicated data center CAT bond deal within the next 12 to 18 months. He said a single hyperscale campus could carry between $20 billion and $30 billion of insurable value, compared with roughly $66 billion outstanding across the entire CAT bond market. Powell said the most likely entry point would be a traditional property catastrophe tranche covering risks the insurance-linked securities market already knows how to model, including hurricanes and earthquakes. He added that some of the biggest data center exposures, including fire, water damage, power outages and business interruption, are harder for the CAT bond market to price today. The broader CAT bond market is on track for another record year, with issuance reaching $18.9 billion so far in 2026 as first-time buyers enter the market. Steve Evans, owner and editor-in-chief at Artemis.bm, said insurers and reinsurers recognize the benefits of the structure and that pricing of reinsurance and CAT bond spreads has softened. Hanni Ali, founder and CEO of Radix ILS, said lenders to data centers may also look to the market to offload risks tied to sabotage, war and cyberattacks.