AM Best has downgraded the Financial Strength Rating to A (Excellent) from A+ (Superior) and the Long-Term Issuer Credit Rating to a+ (Excellent) from “aa-” (Superior) of Construction Guarantee Cooperative (CG) (South Korea). The outlooks of these Credit Ratings (ratings) have been revised to stable from negative.

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 (ERM).

The rating downgrades reflect the revision of AM Best’s assessment of CG’s operating performance to adequate from strong, following a deterioration in its underwriting profitability in recent years, which AM Best expects will remain pressured over the short to medium term. The company recorded two consecutive years of underwriting losses in 2023 and 2024, in addition to the first half of 2025. This was due to a material rise in guarantee claims payment and a sizeable provision of guarantee claims reserves from liquidity pressure on an increased number of its members amid a downturn in the domestic construction industry. In addition, CG’s increased exposure to market risk since 2022 under its realigned investment strategy has been adding additional volatility to its profitability. Despite some mitigative measures by the company, its performance is likely to remain moderate given the ongoing uncertainties on the industry recovery and the general time lag between the construction industry cycle and performance of the guarantee business.

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 of KRW 6.8 trillion (USD 4.6 billion) as of year-end 2024, extremely low underwriting leverage, favourable liquidity and a debt-free position. AM Best also expects that the company may receive financial support from the government in case of a significantly stressed scenario.

Established under the Korea Construction Financial Cooperative Law, CG is a government-designated surety 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 surety segment and a strong membership base, which represents the majority of the general contractors in the country. The majority of project owners of CG’s surety bonds are central and local governments, which adds stability to its overall business volume. Meanwhile, the company has been diversifying its business gradually to overseas surety business and construction-related insurance products over the past few years to alleviate its concentration risk within the domestic construction surety segment.

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 mitigated investment volatility 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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