Construction Guarantee faces profit pressure amidst prolonged construction downturn

A notable rise in guarantee claims payments and reserves is expected to keep claims levels elevated.

Construction Guarantee Cooperative (CG) in South Korea will likely face sustained pressure on its underwriting results and overall profitability over the short to medium term, due to the prolonged downturn in the construction sector, according to AM Best. 

A notable rise in guarantee claims payments and reserves in 2023 and the first half of 2024 is expected to keep claims levels elevated in the near future, as liquidity strains continue for some industry players. 

CG’s risk-adjusted capitalisation, backed by a $5.3b capital base and low underwriting leverage, is projected to stay robust, supported by the company's conservative investment strategy focused on stable fixed-income assets. 

Despite this, the pressures within the industry highlight the challenges CG faces in maintaining historical profitability levels in an uncertain market recovery environment.