AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Rating of “a+” (Excellent) of Construction Guarantee Cooperative (CG) (South Korea). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect CG’s balance sheet strength, which AM Best assesses as strongest, as well as its adequate operating performance, favourable business profile and appropriate enterprise risk management.
CG’s risk-adjusted capitalisation is expected to remain comfortably at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), underpinned by a large capital base, extremely low underwriting leverage, favourable liquidity, a debt-free position, and a conservative investment strategy. AM Best also expects the company to benefit from government support in the event of urgent need, given its role in supporting the construction industry and broader economic stability.
AM Best assesses CG’s operating performance as adequate with a five-year average return on equity of 1.6% and a combined ratio of 102.6% (2021-2025), as calculated by AM Best. The company’s underwriting performance is highly susceptible to the cycle of the construction industry, as demonstrated by three consecutive years of underwriting losses due to a material rise in guarantee claims amid the industry downturn. While the company’s guarantee claims paid and provision of guarantee claims reserves could moderate under the circumstances of a recovery in the construction industry over the coming years, it is expected that it will take some time for the profitability of CG’s guarantee business to be normalised to past levels especially given the general time lag between the industry cycle and the performance of guarantee business. At the same time, CG’s investment portfolio is expected to deliver stable investment profits to support its overall earnings.
Established under the Korea Construction Financial Cooperative Law, CG is a government-designated guarantee underwriter for general contractors and plays a key supporting role in implementing government policies related to the construction industry in South Korea. CG has the largest share of the construction guarantee segment and a strong membership base, which represents the majority of the general contractors in the country. Many of the project owners of CG’s guarantee bonds are central and local governments, which adds stability to its overall business volume. While its business is concentrated in the domestic construction guarantee segment, the company has been diversifying its sources of business by expanding guarantee business to overseas and construction-related insurance products.
Negative rating actions could occur if there is a significant deterioration in CG’s balance sheet strength fundamentals. Positive rating actions could occur if the cooperative’s operating performance demonstrates consistently strong and resilient results under various conditions of the overall economy and construction industry with stable investment profits to support the bottom line.
Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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