Careful exposure management and sustainable market capacity in relation to specialist semiconductor production plants across Asia will be key concerns for the market in the near future, according to Hong Kong-based Peak Re.

Peak Re’s recently installed CUO Philip Hough, who joined from Aspen Re in April, noted that a key focus for the industry is ensuring sustainable market capacity to support the growth of semiconductor facilities.

The need for a greater supply of chips is currently being driven by an almost exponential increase in demand fuelled by the adoption of artificial intelligence (AI).

However, with such growth comes considerable potential risk for the market, Hough added, with individual semiconductor fabs representing multi-billion-dollar insured values, and business interruption (BI) exposures often exceeding the physical damage values.

“Local proportional treaty capacity is generally not designed to absorb projects of this scale alone,” Hough told InsuranceAsia News.

“Consequently, the largest projects typically involve broad co-insurance, layered placements, and international reinsurance participation.

“For reinsurers, maintaining underwriting discipline involves carefully managing accumulation. Although individual participants may write relatively modest lines, they can be exposed through first-loss positions on large concentrations of value. 

“As common market practice, reinsurers typically seek to systematically monitor potential clashes across co-insured placements, facultative supports, treaty participations, and 
shared infrastructure dependencies.”

The level of investment currently taking place across Asia to facilitate AI-led semiconductor production is indeed impressive.

At the end of June in South Korea, Samsung and SK Hynix pledged to invest KRW800 trillion (US$518 billion) with ⁠ suppliers to build two new semiconductor manufacturing sites each in the country’s southwestern city of Gwangju. 

South Korea is not alone, and according to the International Monetary Fund, the country is one of the big four in Asia which are currently the world’s largest net exporters of AI-related hardware, alongside Malaysia, Taiwan and Thailand.

Other regional economic powerhouses are also in the mix, with Israeli chipmaker Tower Semiconductor saying last month that it would invest US$3 billion to bolster chip manufacturing in Japan, including US$1 billion in grants from the Japanese government.

Peak Re’s Hough agreed that the rapid expansion of AI infrastructure is driving a corresponding need for advanced semiconductor manufacturing capacity, which he said is expected to present a significant growth opportunity for the (re)insurance market over the 
coming decade.

“The recent initiatives in South Korea reflect a broader regional trend, with similar strategic investments observed across other key markets such as Taiwan, Japan, China, and parts of Southeast Asia as stakeholders seek to secure critical supply chains,” he added.

“This opportunity spans both the construction phase – generating demand for construction all risks, erection all risks, and delay in start-up covers -and the operational phase, which requires tailored property, business interruption, and specialty solutions.”

Nat cat exposures

However, he said, there is considerable underwriting complexity and natural catastrophe exposures associated with such risks. 

“Semiconductor fabrication plants remain among the most technically demanding risks in the property market,” he added. 

“These facilities combine highly concentrated insured values with specialised equipment and an extreme sensitivity to contamination. 

“Because a relatively modest physical event can result in prolonged production outages, BI and contingent BI exposures are critical components of the underwriting assessment. 

“Natural catastrophe considerations are equally important, as many of Asia’s key semiconductor hubs are exposed to natural catastrophes including earthquake, typhoon, windstorm, and flood.

“While regional catastrophe exposures vary, underwriters must rigorously evaluate site-specific vulnerabilities. The underwriting focus now extends beyond physical assets to encompass infrastructure resilience, cyber risk, and critical utility dependencies, particularly the need for stable power and water supplies. 

“Assessing these risks requires a disciplined approach, combining engineering expertise, advanced catastrophe modelling, and detailed BI analysis.” 

Overall, semiconductor manufacturing is an important specialty segment, but one he suggested will necessitate tailored support. 

“Given the significant values and complex exposures involved, these risks will increasingly require the support of specialist global facultative capacity alongside traditional local treaty markets,” Hough added.