Data centre ILS faces pricing hurdle despite investor appetite: Aon’s Pennay

By George Abbott Sept 23 (The Insurer) — Data centre insurance programs face a pricing hurdle in attracting insurance-linked securities (ILS) capacity, despite strong investor appetite for the exposure, according to Aon Securities CEO Richard Pennay. Speaking to The Insurer TV, Pennay said lenders were demanding very high insurance limits for data centres, creating upper layers with a remote likelihood of loss. “If it’s at the top of the tower, that minimum rate on line in the insurance market will be lower than the minimum rate on line in the ILS market,” he said. The challenge was to generate enough premium to justify committing the capital required to collateralise the cover, Pennay said. “Investors are absolutely keen to consider and take in data centre exposure. It just needs to be at a premium level that ultimately is attractive to collateralise that opportunity.” Pennay said structures incorporating more risks than the just property could help make the exposure attractive to capital markets investors. “There are ways to structure these products with a little bit more risk embedded in them that could ultimately be attractive,” he said. He expected data centres to become a key