Korean construction insurer maintains strong capital

KFINCO's profitability is considered modest, with a return on equity of 2.0% in 2023.

Korea Finance for Construction (KFINCO) is perceived to have a stable outlook attributable to its robust capitalisation, moderate company profile, and financial performance. Additionally, potential state support contributes to a one-notch uplift from its standalone credit quality, said Fitch Ratings.

Supervised by South Korea’s Ministry of Land, Infrastructure, and Transport, KFINCO was established to promote the domestic construction industry by providing guarantee and insurance services to member firms. 

This governmental backing enhances its financial stability and operational capacity.

KFINCO's capitalisation remains robust, with a regulatory capital ratio of 500.7% at the end of 2023, significantly above the 100% regulatory minimum. 

The steady increase in member contributions has bolstered KFINCO's capital, which exceeded KRW 5.9 trillion in 2023, covering over 90% of total assets.

KFINCO's profitability is considered modest, with a return on equity of 2.0% in 2023, up from 1.5% in 2022. 

Despite the potential vulnerability to economic and construction sector-specific shocks, the three-year average return on equity remains at 2.0%. The combined ratio has deteriorated slightly due to rising loss ratios in the guarantee business and reduced guarantee reserve reversals.

Even with high business concentration within the domestic construction sector, KFINCO has managed low member concentration risk and is expanding its geographical presence by attracting reputable general construction companies.

KFINCO has maintained a balanced asset allocation with a risky-asset ratio of 26% at the end of 2023. 

Whilst the cooperative faced impairment losses from a commercial real estate fund and corporate loans, its capital buffer is deemed sufficient to absorb these losses. KFINCO also maintains satisfactory levels of liquid assets, including cash and investment-grade fixed-income securities.