South Coast Surety

South Coast SuretySouth Coast Surety leverages decades of industry knowledge and experience to ensure that contractors get bonded and insured.

By Chris Kelsch

Though South Coast Surety has grown and prospered since Steve Swartz founded the company 23 years ago, surprisingly little has changed throughout the surety industry. “The principles of Surety have not changed in 100 years,” Swartz says. “The companies doing the underwriting are still the same companies and although a portion of the industry has updated standards to reflect the need to service emerging contractors, most surety requirements are the same as they have always been.” But what Swartz has been able to do is foster close relationships with contractors and underwriters to ensure a steady stream of business that continues to pay dividends.

Though its beginnings date back to the ancient Romans, the modern-era surety industry can really be traced to the 1930s. During the New Deal, when the federal government launched many public works projects, the government sought insurance against contractors to ensure they could a)fulfill their contractual duties to finish the projects and b)pay their subcontractors and material suppliers.

The Miller Act was thus passed in 1935, and since then, two primary types of bonds are issued in the construction industry. The first is performance bonds, which are issued to protect the government or owner of a project against a contractor being unable to fulfill its duties. The second is payment bonds, which are issued to ensure that subcontractors and material suppliers, who may be otherwise reluctant to work on the project, are ensured of getting paid should a contractor be unable to complete the project.South Coast Surety box

In essence, a surety company acts as a vetting agency of contractors for the public entity jobs they wish to bid on. “In surety, the mantra for the underwriter is ‘zero-loss potential,’” Swartz says. “Essentially, we take a look at a contractor’s experience, knowledge, and cash flow. We want to make sure they can complete the job.”

Though any surety company can cover those basics, Swartz strives to make sure South Coast Surety goes above and beyond them. “Your best surety agents understand both the construction and surety industries and are part of a contractor’s advisory team,” Swartz says. “We basically work with contractors and examine their financial strengths and weaknesses, and say, ‘Look, this is what you need to do today to get the surety support and this is what you will need to do moving forward to expand that surety support.’”

Finance Background

One reason Swartz has excelled at leading South Coast is because of his background. “I started out in banking right after my service in the Air Force,” Swartz recalls. “I discovered I could look at spread sheets and really understand them, so I became a loan officer and eventually a branch manager, and then went to work as a credit manager for an engineering firm in Orange County, Calif.”

Eventually he would run his own equipment leasing company, but that ended when interest rates spiked in the late 1970s, putting many equipment lenders out of business. That’s when he decided to put his industry knowledge to work, and eventually started South Coast Surety in 1994. “We were a simple bond-only surety agency when we started,” Swartz recalls. “We provided direct surety services for a handful or so of construction contractors in our Southern California area.”

But since then, the company has added more services. It is now a Managing General Agency that has its own underwriting authority, for example. That allows South Coast to be a one-stop shop for general contractors. “We are one of only a handful of surety agencies that can also underwrite,” Swartz says. “At one point early in our history a surety company decided to stop writing commercial surety business. We had a good relationship with the Southern California underwriter and they decided to refer all the commercial insurance agents to us for their commercial bonds. It seemed like overnight, 150 agents started calling on us for their various bond needs.”

Targeted Markets

Not only did South Coast expand its service offerings, it made a concerted effort to target an underserved part of the market: small and medium sized subcontractors and service and supply/install contractors, which are different from general contractors in their size and in their niche service offerings. Again, Swartz’s tenure in the industry and overall knowledge came into play. “You have to recognize that subcontractors and suppliers also need bonding,” he explains. “A company that does the signage on a project is different from the general contractor. We have developed a strong reputation to get something done.”

In fact, working in this segment has been one of the more gratifying aspects of South Coast’s growth for Swartz. As a case in point, South Coast was able to work with a small family-owned business in Virginia that specialized in museum displays. The client was invited to bid on a job for the naval museum in Annapolis, a job that was five times bigger than any it had done before. “Though they didn’t have the established financial numbers that were generally required, they had a long history of performing on similar types of projects and we were able to work with them, as well as with the underwriting surety company, Zurich,” Swartz recalls. “They were able to get the bond and get the job. It was a great day, after the job was completed, to take the tour of such a terrific facility with the underwriter and physically see the quality of their fine work. ”

Such success has allowed South Coast to expand well beyond its southern California roots. It is one of the largest commercial and contract bond surety producing agencies in the country, serving all states. And his stable of employees has remained remarkably consistent. “It is not that easy to hire people who already know the business, instead we find individuals that want to learn and teach them what they need to know” Swartz says. “This has worked well for us over the years and we have many valuable staff members that have been with us for more than a decade.”

Not only has he helped employees looking to get established, Swartz has also helped young contracting companies establish a foothold by approving bonds his competitors might decline. “That’s always the most enjoyable part,” Swartz says, “to work with an account and help build the surety support that helps our contractors successfully grow.”

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