S&P Global Ratings has placed Engineering Guarantee Insurance’s ‘A’ long-term local-currency financial strength and issuer credit ratings on CreditWatch with negative implications due to the Korean insurer’s material exposure to distressed manufacturer Dawonsys.
The ratings action, announced on 18 March, reflects S&P’s view that EGI could face substantial claim losses if guarantee bonds issued for Dawonsys are called, potentially weakening its capitalisation and raising financial risks.
According to local press, cited by S&P, EGI’s gross guarantee bond exposure to Dawonsys amounts to about KRW1tn (US$667m), or roughly 69% of shareholders’ equity at end-2025. The guarantees include contract performance bonds and advance payment bonds.
Dawonsys, which manufactures rail vehicles and power electronics systems, has failed to deliver orders for Korea Railroad Corp. and Seoul Metro Transportation. This has resulted in extended contract periods, which have also increased the risk of bond calls on EGI’s guarantees.
S&P added that it does not expect material risk in EGI’s other large guarantee exposures. However, potential claim payments related to Dawonsys could significantly erode EGI’s capitalisation and its ability to meet short-term financial and policyholder obligations, particularly if it ends up covering most of the claims and does not replenish capital.
