AM Best Affirms Credit Ratings of Construction Guarantee Cooperative

AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Rating of “aa-” (Superior) 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 strong operating performance, favourable business profile and appropriate enterprise risk management (ERM).

CG’s risk-adjusted capitalisation is assessed at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), underpinned by a large capital base of KRW 6.8 trillion (USD 5.4 billion) as of year-end 2022, extremely low underwriting leverage, and a conservative and liquid investment portfolio with the majority of its investments placed in stable fixed-income assets.

CG’s strong operating performance is backed by its favourable underwriting performance with a five-year average combined ratio of 62% (2018-2022), as calculated by AM Best. The company’s surety premiums continued to be stable over the past years and contributed to its very low loss ratio, along with growing insurance business that also remained profitable supported by its prudent underwriting management to ensure steady profitability. Despite sizeable unrealised capital losses in 2022 from the stock market volatility, AM Best expects CG’s investment yield to improve over the coming years supported by a high interest rate environment and its efforts to realign investment strategy.

Established under the Korea Construction Financial Cooperative Law, CG is a government-designated surety underwriter for general contractors in South Korea. It has the largest share of the construction surety segment and a strong membership base, which represents more than 70% of the general contractors in the country. To alleviate its business concentration risk partially within the domestic construction surety line and expand the range of services to its members, the company has been diversifying its business gradually to overseas surety bonds and construction-related insurance products over the past years.

AM Best considers CG’s risk management capabilities to be appropriate with a comprehensive ERM structure to manage its key risk areas effectively. The company conducts thorough assessment of its surety bond credit risks annually and monitors its members’ financial and operational issues on a daily basis through an early warning model and watch system.

Negative rating actions could occur if CG’s operating performance deteriorates markedly due to significant accumulation of surety bond claims from a prolonged downturn in the overall economy and construction industry. Whilst it is thought to be unlikely, positive rating actions could occur if the company’s operating performance demonstrates exceptionally strong and consistent results.

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.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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