Exclusive: Trade insurance ceiling to hit record W700tr amid US investment push

South Korea's trade insurance contract ceiling is set to rise to a record 700 trillion won ($522 billion) next year. The increase comes as the country's investment push into the United States gathers pace. That marks a rise of 390 trillion won from this year's ceiling of 310 trillion won, as of Wednesday.

Experts interpret the sharp increase as the government preparing for the rollout of its US investment commitments. They said the larger the trade insurance ceiling grows, the bigger the risk borne by the state as guarantor.

According to political sources Wednesday, the government approved a 700 trillion won trade insurance contract ceiling for 2027 at a Cabinet meeting Tuesday. It also raised this year's ceiling by 140 trillion won, from 310 trillion won to 450 trillion won. The final ceiling will be set after National Assembly approval.

A more than twofold jump in the ceiling within a single year is unusual. The annual limit rose from 225 trillion won in 2014 to 230 trillion won in 2015, then stayed unchanged for seven years through 2022. It then increased gradually — to 260 trillion won in 2023, 270 trillion won in 2024, 280 trillion won in 2025 and 310 trillion won in 2026. After raising this year's ceiling to 450 trillion won, the government is set to expand it again to 700 trillion won next year.

Trade insurance compensates exporters of large plants, such as nuclear power stations, for losses when they fail to collect payment from overseas buyers. Run by the Korea Trade Insurance Corporation (K-SURE), the coverage can also be used by financial institutions that provide export-import financing but fail to recover their loans.

The expansion is drawing attention because it comes ahead of the implementation of South Korea's $350 billion investment commitment to the US.

The government is reportedly planning to announce its US investment project plans on Sept. 18, timed with President Lee Jae Myung's attendance at the UN. It then plans to send an initial payment of $2.2 billion or more to the US on Sept. 29-30. The leading candidate for the first US investment project is the Ensinal gas-fired combined power plant in Texas, with total project costs of $22.3 billion.

Other key projects under negotiation between the two countries include the construction of eight large nuclear power plants and LNG development in Alaska. Industry sources explain that participation in such large-scale plant projects inevitably increases demand for policy financing, including trade insurance, to hedge against risks such as unpaid bills.

In practice, the cost of building the eight nuclear power plants has emerged as the biggest sticking point in the negotiations. The government is seriously considering constructing eight large nuclear plants, including two Korean-model reactors, to meet US demands. Each large plant costs about $15 billion, so building all eight would require $120 billion in total. Simply adding the Ensinal plant and the nuclear plants together comes to $142 billion, exceeding 71 percent of the available funds.

Adding the Alaska LNG development project, a key initiative of US President Donald Trump, makes it inevitable that the total will exceed the $200 billion ceiling. Many observers say the Alaska project's profitability remains uncertain, making it difficult to guarantee commercial viability.

Analysts attribute this structure to the makeup of the Korea-US Strategic Investment Project Management Committee. The heads of K-SURE and the Export-Import Bank of Korea automatically sit on the committee as representatives of policy finance institutions.

An industry official from the investment sector said, "Typically, if total investment is 100, equity accounts for 20 and project financing accounts for 80," explaining that "the 80 in project financing is guaranteed by K-SURE or the Export-Import Bank of Korea within the scope of Korean content." The official added, "The increase in the trade insurance ceiling is interpreted as being made with the US investment in mind."

The problem lies in the risk that policy finance institutions will have to bear. A trade industry official said, "It is generally seen that a bigger insurance ceiling means bigger risk." The official added, "A sharp increase in the ceiling in particular means the state's guaranteed risk exposure is growing by that much."

The official went on to say, "If a global economic crisis, a refusal by a major trading partner to accept imports, or a chain of defaults on large projects were to occur, massive insurance payouts could worsen K-SURE's finances and ultimately place a heavy burden on state finances."

Profitability could deteriorate if project costs rise beyond expectations due to high US labor and construction costs and permitting delays. If projects whose feasibility has not yet been sufficiently verified, such as Alaska LNG, are included among the investments, how to secure "commercial rationality" could emerge as a key issue.

Song Young-kwan, a senior research fellow at the Korea Development Institute, said, "Concerns are also being raised over macro-level factors such as exchange rates and returns related to South Korea's investment in the US." He added, "While Europe and Taiwan are carrying out their US investment agreements through corporate investment, South Korea is allowing the use of foreign exchange reserves, among other things, and this could cause problems when the semiconductor cycle turns down."

"I hope (South Korea) does not rush the US investment and holds out as long as possible," he said, adding, "Changing the current US investment negotiator, among other approaches, to reset the framework and buy more time could also be an option."