Best’s News & Research Service - October 11, 2019 09:44 AM (EDT)
AM Best Affirms Credit Ratings of Construction Guarantee Cooperative
- October 11, 2019 09:44 AM (EDT)
Hong Kong //BestWire// - AM Best has affirmed the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Rating of “aa-” 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 categorizes as strongest, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM).
CG’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is at the strongest level, supported by the company’s large absolute capital base and extremely low underwriting and asset leverage. Its conservative investment strategy, which prioritizes liquidity to secure funds for guarantee claims and to provide loans to members, adds stability to its strong capitalization.
CG’s operating performance is highly profitable with a five-year average combined ratio of 65.3% and an operating ratio of 2.4% in 2018. Its underwriting performance remains volatile due to a high correlation of its business with the construction industry’s economic cycle. However, its strong pricing power stemming from its dominant market position and the compulsory nature of surety bonds in construction projects helps the company to mitigate underwriting volatility partially. A stable stream of investment yield, which mostly consists of interest income, also provides a solid buffer to CG’s bottom line.
Established in 1963 based on the Korea Construction Financial Cooperative Law, CG is owned 100% by its members who comprise the majority of the general construction companies in South Korea. It is a government-designated surety bond provider for general contractors and maintains over a 50% share of the construction guarantee market (based on total underwriting volume in 2018). CG has diversified its business by expanding into overseas projects and the insurance business to mitigate its risk concentration in the domestic construction guarantee business.
AM Best considers CG’s risk management capabilities to be appropriate given its risk profile. Its key risk areas are monitored effectively through a comprehensive ERM structure, which includes a sophisticated credit evaluation system and real-time monitoring of its members’ financial status.
Negative rating actions could occur if CG’s risk-adjusted capitalization deteriorates materially due to significant accumulation of claims caused by a prolonged recession in the construction industry.
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 Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency and information provider with an exclusive focus on the insurance industry.