Rancho Mesa's Director of Surety Matt Gaynor interviews Vice President of Tokio Marine HCC Surety, Keith Clements. In this episode, we learn about Keith's background, his role with Tokio Marine HCC and how they fit into the surety marketplace.

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Tokio Marine HCC

Director/Producer/Host: Alyssa Burley

Host: Matt Gaynor

Guest: Keith Clements

Editor: Lauren Stumpf

Music: "Home" by JHS Pedals, “News Room News” by Spence

Transcript

Matt Gaynor: Welcome to our StudioOne™ podcast, and thank you for tuning in. My name is Matt Gaynor, Director of Surety here at Rancho Mesa. Our guest today is Keith Clements, Vice President from Tokio Marine. HCC Security. Welcome, Keith.

Keith Clements: Thanks, Matt. It's great to be here in StudioOne™.

MG: My goal today is to learn some background on Keith, discuss his role with Tokio Marine HCC, and how they fit into the surety marketplace. Since Keith has been a longtime representative of the bonding industry, I also want to discuss the changes that have taken place over time and some key underwriting products currently available through Tokio Marine HCC. Keith, to start out, let's get a little background on you, where you grew up, family, college?

KC: Sure. I grew up in a small town in Illinois called Ottawa, Illinois. It's about 80 miles from Chicago. It's a factory town. They made glass and things like that and my dad worked for Union Carbide, he made glad wrap, and so I grew up there. I was lucky enough to get a scholarship to the University of Iowa to run track. So, that's how I got to Iowa and go Hawks, right? So, lettered there for four years, had a great time. The best thing I had going on there was I met my wife of 41 years and we're still married and have two kids, Lauren and Matthew, and they're in their thirties and thank goodness off the payroll, right? So, Iowa was a great spot. I had no idea what I wanted to do, just run track. Obviously, there's no profession in that, and they had a great insurance program and I all of a sudden got interested in that. A guy named Emmett Vaughn was the head of the insurance department there, and so, it was a, it was a great start, had a fun time at Iowa for four years.

MG: So we have something in common. I actually met my wife in college, so I guess we both were smart enough to take advantage of that when we were there.

KC: I say she's a saint. [Laughs]

MG: Yeah. Alright. So, how did you get started in bonding?

KC: Oh, that's pretty interesting. Right out of college. At Iowa, they had all these insurance companies coming in and interviewing, and there were claims positions at different companies and there were underwriting positions, and then there was this thing called surety bond underwriting, which I had no idea and, but it sounded interesting. There were also a couple of jobs, Oscar Mayer for a wiener salesman. And so I started looking around and I thought, you know what? I like numbers and I like everything that goes on, I think this bonding thing might sound pretty good. So, I took a position in Des Moines, Iowa, with Aid Insurance Company at the time, and they progressed into Allied and the Nationwide, but it was interesting. It was an interesting position. It taught me a lot about numbers and, and things like that. So, from day one, I'm still trying to decide if I like it, and I always said at the beginning, my fallback position was I could go drive the Oscar Meyer Wiener mobile around, right? [Laughs] And when they had that? Probably still do but yeah, pretty funny.

MG: So then how long were you there, and then what brought you out to San Diego?

KC: Sure. I was in Des Moines for three years training and all that, and then I went to Minneapolis. They offered me a position to transfer up in Minneapolis and start a bond department up there. So I was there three years and then in the middle of a snow- the second snowstorm of 72 hours, this one was 18 inches, the one before that was 17 inches of snow, somebody called me from the home office and said, hey, we're thinking about opening up California, San Diego, hey, would you be interested in going? Hmm, turned to my wife, who was snowed in too at the time, right, because we couldn't get out. I said, you want to go to San Diego and look around? And she goes, no, I just want to move there. [Laughs] So we moved here in 82 and have been here since.

MG: Wow. So that's a great story there. Going back to those early days, nowadays, we write bonds for 40, 60 million and it's not a big deal. Tell us a little bit about your largest bond when you got started in the industry.

KC: I think my largest bond was like a million two or a million four. Aid at the time was not huge doing big bonds, but that was a big bond. It was for a contractor going to remodel a Hy-Vee store. I'll never forget it, in like Sheraton, Iowa, small little town in Iowa, and he didn't require bonds much. But we went to see the agent and the contractor, and it was real interesting because he was old, established. He didn't even know why we wanted all this information because he could just do it and just leave him alone, right, type thing and it was good. It was, it was a good learning experience for me, and , but a million two was a big bond then, so.

MG: Right. So, part of the reason I wanted to talk with you today is just how long you've been in industry. I started in 86, so I've been doing this for quite a long time. I know you started before that, but why don’t you give our audience a little insight into the differences of writing bonds back in the eighties and nineties. Like, describe how accounts were submitted, how much time you had to approve a project and collect everything was on, obviously paper submissions back then.

KC: Oh, absolutely. The most important person I remember in the whole company was Les in the mailroom, right? Because Les went and got the mail at the post office, got bags and bags of it, sorted it, and delivered the mail. And it was just great because you waited and waited, and then when Les showed up, everybody was excited to see Les, right, and he'd give you your mail for the day and yeah, everything came in by mail or every once in a while, an agent would say, hey, I've got a rush, I'm going to bring it up, or they'd call you first and go through the whole submission to see if we would even have an interest before. Now, obviously, it's all email, that type of thing. I remember in the early eighties, we didn't have a fax machine here, and we had to either beg for a fax machine and my boss in Des Moines said, it's just a fad, we'll get you one but just because you think you really need it, but it's really not going to take off, and sure enough, obviously it was a fad because now we have computers and emails and all that, but it was hysterical, you know, and, we really had fun with that.

MG: Yeah. And I guess fast forward to today, there's got to be times where you have to respond within a couple of hours-

KC: Absolutely.

MG: -for certain jobs or certain accounts you're looking at.

KC: Yeah, I remember back then people would call in for bid bond requests if you didn't have a line and, and you'd sit on the phone and you'd write down everything, you know, okay the liquidated damages the, who's it going to? When's it going? You'd have to write it down because that was the only way they could get your information. And it was a quick, quick situation now. Yeah, it's, it's a couple hours and you're going to have a good idea of what the credit's going to look like. You're going to have an idea of what the count looks like and you can give back to people very, very quickly. It's shocking what's online and what we can get so quickly. Yeah.

MG: So we appreciate it working together. I've been here for ten years at Rancho Mesa and I think we started working together right when I came here. How long have you worked with even day before that? Or how long have you worked with Rancho Mesa?

KC: Sure, I worked with Dave when he was at Pacific Insurance. Yeah, before that, before he started Rancho Mesa. I dealt with his accounts. They had a bond person like yourself over there. Kenny Olson.

MG: Okay.

KC: And we had a number of accounts we did for Dave and when he moved over here, it was a natural to just kind of move some of the accounts over and it's probably been 15, maybe 20, probably 20, 25 years that I worked with Dave over the years because we go see accounts and Dave would go with us and and great person guys do a great job of contract bonding and contractors, you write a lot of contracts. So, it was a natural fit to bring you in and what a great thing they did when they did that, so.

MG: Yeah, well, it's been a great relationship. I mean, you've helped us out in the early days when obviously we didn't have a bond person up to, you know, today, now we have myself and Andy, so.

KC: Right.

MG: Yeah, we really appreciate working with you there. So let's talk a little bit about Tokio Marine HCC surety. How do they fit into the security landscape?

KC: Boy, we do just about everything. We do things with what we call our quick and easy program to SBA bonding, where SBA bonding the government will guarantee bonds for contractors that need some help. They go up to $6.5 million on a single job size. So for a three quarter, 1% fee, they will guarantee the bonds. We do that quite often. We're the largest surety in the SBA program. Then we have our total net worth program, which we can talk about. We also rate bonds, $100 million. We've written a few recently for 100 million for tree trimming of some of these fire projects up in Northern California. It's a shame that that happened, but people have to get rid of those trees, the old dead trees, and so it's pretty interesting. Yeah, we're, we're all over the place in the marketplace.

MG: So, it sounds like you guys are from soup to nuts. I know we worked with you on both small and large contractors, and you did reference one thing there, and that's your total net worth program. Why don't you talk to the audience a little bit about how that works?

KC: Sure. Well, the total net worth when I came over to Tokio Marine almost five years ago, they were looking for somewhere to put good accounts that would make money, but wouldn't keep the money in the business and didn't want to go get CPA reviewed percentage of completion financial statements. So, I helped with Frank Mestre. We sat down and said, how can we do this? And we were first talking, that'll be 1,000,000, 2 million program, and then, you know, million single, 2 million aggregate. Then all of a sudden we got into it and Frank turned to me one day and he said, you know, we could do this two and a half million single, 5 million aggregate if we wanted to and I think this fits, and I said, I think you're right, but you're the boss, right? [Laughs] So it's a program that we developed and we work off of tax returns. We get a questionnaire, we get a personal tax return, and a personal financial. We might get supplementals for aging of receivables and payables, and then we do verify the cash that they tell us that they have the contractor in the business, and it works out great. We've pressed the limit. We've gotten to $4 million on some projects because the people qualify. They just don't have the trappings of the CPA reviewed statement and we know how to read tax returns. We know what we're looking for and it's worked great. I'm knocking on wood, hitting my head, right? But I think it's been pretty successful program. It's countrywide and we really like it a lot.

MG: Ironically, I received a submission yesterday for a 2.4 million dollar bond, so I think after we're done today, I might have to stop in and look at a couple of tax returns at my office to go and see if it might be a good fit for you.

KC: Well, thanks. We appreciate the business. [Laughs]

MG: Yeah. So before we wrap up, is there anything else we should know about Tokio Marine HCC or you that we haven't discussed yet?

KC: Well, we're an A++ 15 company. Tokio Marine HCC. HCC stands for Houston Casualty Company. We're out of Houston, and we have a treasury limit of $50-someodd million, and then we have other companies with treasury limits that take us to, I think, over 100 million. We can go larger if we need to. But, I think that Tokio Marine is just a great company because we can do so many things in so many different spaces. We also have a surety company we just started about three years ago down in Mexico City. So, if anybody needs bonds in Mexico, we're the company and we have our own company. You've got to have your own company down there. You can't be a Tokio Marine HCC and just do it, you've got to have your own company in Mexico. They don't, they won't, they will not allow that, anything else, but that, and we also do Europe. We do bonds in Europe because we have a European operation too. And obviously, Asia with the Tokio marine folks. So, yeah, it's pretty interesting, big company. You don't realize how large it is and we're pretty, pretty low on the radar, but it's, it's fun to hear all these things that we can do.

MG: Yeah. Well, I appreciate learning everything about your company and thank you Keith and thank you audience for tuning in to StudioOne™ for our podcast. Have a great week.

KC: Thanks, Matt.

MG: This is Alyssa Burley with Rancho Mesa. Thanks for tuning in to our latest episode produced by StudioOne™. For more information, visit us at ranchomesa.com and subscribe to our weekly newsletter.