Construction Guarantee keeps A+ insurer strength rating with stable outlook

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Construction Guarantee A+ rating

Highlights

Fitch affirmed Construction Guarantee's Insurer Financial Strength rating at 'A+' with a Stable Outlook, reflecting a two-notch uplift due to expected state support.
At the end of 2025, guarantee exposure to capital was 24.8 times, below the regulatory ceiling of 30.0 times, with total capital above KRW6.5 trillion.
Profitability remains weak with a five-year return on equity of 1.4% and a combined ratio of 100.7%, as economic volatility continues to impact earnings.

State support and capital strength underpin rating

As reported by Fitch Ratings, the agency has affirmed Construction Guarantee's Insurer Financial Strength rating at 'A+' with a Stable Outlook, reflecting a two-notch uplift from the company's standalone credit quality. Fitch says that uplift is driven by the high likelihood of exceptional state support, given the insurer's policy role and close ties to the South Korean government.

The ratings firm says Construction Guarantee benefits from 'Strong' capitalisation, while its profile is partly constrained by a 'Moderate' company profile and 'Adequate' financial performance. South Korea's Ministry of Land, Infrastructure and Transport directly supervises the company, which provides guarantees, insurance and loans mainly to general construction companies.

Construction Guarantee's guarantee exposure to capital was about 24.8 times at the end of 2025, below the regulatory ceiling of 30.0 times, while total capital remained above KRW6.5 trillion. Fitch says the company's large capital base, conservative investment approach and lack of reliance on external borrowing give it capacity to absorb claims volatility and cyclical pressure.

The agency adds that the insurer introduced a completion guarantee in 2025 to support builders facing stress in project-financing development. Fitch expects those guarantees to be provided selectively, allowing capital metrics to remain manageable over the medium term.

Construction cycle continues to weigh on earnings

Fitch expects underwriting performance to recover as the number of troubled members declines, recoveries improve and budgets for government-led projects increase. Even so, the agency says earnings remain exposed to economic swings, sector-specific shocks, high interest rates and inflation, while profit maximisation is not the company's primary objective because of its policy-oriented role.

Profitability has been weak since 2023 as higher rates and construction costs have weakened the financial profiles of members and increased guarantee claims. The five-year return on equity stands at 1.4%, with 1.5% in 2025, 0.3% in 2024 and 1.2% in 2023, while the combined ratio is 100.7%.

Fitch says provision for subrogation guarantee payment increased in the first half of 2026 because of greater exposure to certain products and a prior claim. Underwriting losses are partly offset by stable investment returns and prudent asset management, although the standalone insurer strength assessment is still held back by financial performance.

The agency also describes Construction Guarantee's company profile as 'Moderate', citing its specialist concentration in domestic construction guarantees despite a dominant market share of about 52% by underwriting amount. Overseas guarantees have increased since 2020, but they still account for only 3.5% of total guarantee exposure at the end of 2025, and Fitch says any upgrade would likely require stronger standalone credit quality, broader scale and successful profitable diversification.

In our earlier coverage of Fitch’s affirmation of CI Guarantee’s insurer financial strength rating, we noted that the A- rating with a Stable Outlook was supported by strong capitalisation, while construction-sector claims continued to weigh on performance. The report also highlighted Fitch’s view that CI Guarantee could benefit from extraordinary state support if needed due to its policy role and close supervision by South Korea’s Ministry of Land, Infrastructure and Transport.

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