All the World’s a Market for Rekerdres & Sons

Texas agency insures nearly half of the nation’s cotton exports.

Ted Rekerdres never intended to go into the insurance business, but an effective sales job by his father “Rek” Rekerdres, who established an independent cargo insurance brokerage in Dallas in 1953, brought his son into the fold.

After a half-century in business, Rekerdres & Sons Insurance Agency Inc. is a leader in insuring international commodity trading, specializing not only in cotton but in the shipment of products such as grapefruit, soybeans, coffee, cocoa, chemicals and oilfield equipment across the globe, as well.

Ted Rekerdres acknowledged that at some point the company’s name may have to be changed to something other than Rekerdres & Sons, since both his son and his daughter have joined the family business. Whatever the name, the firm seems poised to continue as a force in cargo and marine insurance for another 50 years.

After serving in the merchant marines and as a naval officer in World War II, Rek Rekerdres capitalized on his naval experiences at various overseas ports by becoming a commodities futures broker on Wall Street. An assignment to open a cotton futures office in Dallas eventually led him into the business of insuring cotton exports after the United States Department of Agriculture began its cotton support program, which virtually eliminated futures as a way to hedge against price fluctuations. Rek Rekerdres’ understanding of ports, cargo, commodity merchants and trading rules put him in a position to segue into the insurance business, and build upon his knowledge of a specialized business.

In telling his father’s story, Ted Rekerdres said the “point in this is to emphasize that the experience and the emphasis has always been on the contract and the trading. Fifty years later that’s the same thing that we emphasize today because it’s the contracts and the rules that dictate the kind of risk and the exposure that the merchants, our clients, have to insure against.”

Trading, contracts rule
For his part, Ted Rekerdres also served as a Naval officer and came into the business no stranger to foreign ports. Knowledge not only of foreign ports, but also of warehousing characteristics, trading conventions for various commodities, and shipping rules and regulations across the globe is essential to success in the international commodities insurance business.

“There are Liverpool contracts, there are European contracts, there are Asian contracts, there are U.S. contracts,” Rekerdres said. “Even within the United States there are contracts that vary from state to state. And all of these contracts and rules are always changing because the nature of trade changes.”

Rekerdres added that merchants depend on his firm “to understand the rules and make the corresponding adjustments in the contracts.” Because of the intricacies, complexity and risks involved in international trade, every policy has to be custom written to suit the unique needs of each client. A “standard vanilla cargo contract” is not going to be sufficient, Rekerdres said, and its use will lead an agent into “an errors and omissions (situation) in a heartbeat. It won’t have anything to do with the problems and exposures that are manifest in the trading rules, in the contracts. So you’ll wind up with claims and exposures that aren’t covered because of the vagaries of the trading rules. And the merchant will come back and say, ‘Well, did you read the rules, did you understand how you need to change my policy?'”

Keeping up with all the trading rules requires travel, a lot of it, and study. Rekerdres recently completed a 16-month distance-learning course and received a postgraduate diploma in Maritime Law through London’s Guildhall University. He said the reasoning for taking that particular course is that “English law is for merchants the most prevalent. The conventions relating to carriage and contract performance and arbitration are utilized by many more merchants than that of the U.S., for example, or any other body of law. That’s the reason why I chose the English law course.”

He noted that a recent decision by the U.S. Supreme Court drastically changed the interpretation of certain conventions that affect trade in the United States. In the past trade disputes involving U.S. entities and non-U.S. companies were generally arbitrated in the United States. However, the Supreme Court interpreted the arbitration clause differently. They determined “that an arbitration clause could be construed to mean what it said on the paper—that you had to arbitrate outside the United States,” Rekerdres said. “That ruling in an instant put the United States on the same level, or had the tendency to put us on the same level, as any other nation in the world. Which means, if you’re trading in Europe and you have a foreign arbitration clause in a bill of lading, you’ve got to get on a plane and go to wherever that clause says you have to
arbitrate. So that meant that you have to be conversant with other conventions to be effective.”

Sticking to one’s knitting
In an era when mergers and acquisitions are common and agency management consultants thrive on helping agencies with the problem of perpetuation, the fact that Rekerdres & Sons has been in business for over 50 years and has a plan of succession in place is no small feat.

How has the firm managed to maintain its stability and achieve growth at the same time? “The easy answer is to say, ‘well, you can stick to your knitting,’ and stay with exactly the type of activities that you were founded on,” Rekerdres said. “But that would be too glib an answer, because we’ve expanded into other commodities, like coffee and cocoa, which are difficult commodities.” However, he commented that the company has in fact stuck to its knitting “in the sense that we stayed with our original commodities and didn’t try to become an all lines, all dancing, all singing type of agency. But we did diversify within the niche of commodities.”

An early foray into automation has also helped the agency maintain its position in the forefront of the commodities trading market. Rekerdres said that with revenues in excess of $10 million his firm enjoys a very high production rate per employee. He attributed much of that efficiency to the agency’s use of automation. In 1993, the company developed an automated system that enabled it to produce the world’s first electronic certificate of insurance for
merchant trading. The platform is designed to eliminate double entry, as well as provide validation of risk factors at both the origin and destination.

“This type of business is very paper intensive. The kind of declarations that you make on shipments … trading is very much paper bound, or had been paper bound,” Rekerdres said. “And in the early ’90s we beat even Chubb in rolling out an electronic certificate. We use these negotiable
certificates of insurance as a part of the trading.”

Without electronic capabilities it’s easy to “wind up in this very expensive spiral of re-entering everything that’s been declared,” he continued. “A merchant declares a shipment from A to B or creates an invoice reflecting a shipment from A to B. We have software now that captures that initial entry and aggregates it on up the line and makes that declaration. We rate it, review it and it might be aggregated with several other subsidiary offices, and then that entire declaration flows out to our underwriters who use a subscription-type of manuscript policy.”

A load of Sumatran coffee beans from Indonesia may go through any number of warehousing accommodations, transportation scenarios and ports of call before it reaches its final destination in Miami. Rekerdres & Sons specializes in making sure its clients’ financial interests, such as Sumatran coffee beans, are covered from the time the merchant assumes the interest and it reaches its final destination, whether it’s
traveling from the far reaches of the Russian interior or from a warehouse in Papua New Guinea.

Using a subscription policy system, in which a number of underwriters each take a percentage of the risks, not only enables the company to offer such continuous cover, it helps keep down reinsurance costs and ensures a pool of underwriters willing to take on the myriad risks involved in international trade.

The President’s ‘E’ Award
Rekerdres’ expertise and success in international business activities has led the company to earn the President’s “E” Award for excellence in exporting not once but twice. Created by President John F. Kennedy in 1961, the award honors U.S. businesses and organizations that have attained four years of consecutive outstanding export growth.

According to Rekerdres, “the basis of the award has to do with expanding the exports of the United States.” He said his firm has consistently met that criteria—helping the United States improve its balance of payments and its business presence in the international arena—due to the substance of the agency’s overseas business.

“Marine insurance,” Rekerdres said, “which is what we do, is the same as a sale of, say a Caterpillar tractor for example, or any other capital goods.

He explained that just because a U.S. company sells a Caterpillar tractor to South Korea, it doesn’t mean a U.S. firm will insure it. “The South Koreans might say, ‘no, we’ll go ahead and insure it,'” he said.

Rekerdres pointed out that nations compete vigorously over the right to insure shipments of cargo around the globe, and the competition is not based just on price but also on “who has the most effective insurance.” In the international marine arena, “we compete head to head not so much with the guy down the street, but with an insuring entity in Korea, or in Germany, or in England or wherever else,” Rekerdres added.

He emphasized that competing with insuring entities in other countries involves not only competing on price but also “on the effectiveness of your cover. If the merchant has some exposures that put him at risk beyond the scope of the cover that might be provided by the South Koreans or the Japanese—say some interior transit or some gray area coverages—by giving more in our agency, in our contract, then we can show the merchant that he’s better protected and should, if every thing is equal, take our coverage to protect his financial interest.”

Rekerdres said part of the reason his firm has been honored with the award “had to do with understanding the attachment of the merchant’s financial interest and protecting that. … Our understanding of—where is your financial interest arising and when does it extinguish—is what was being recognized by the award.”

A new golden age
Acknowledging that in the past there wasn’t much room for new people to make headway into the marine insurance area, Rekerdres said he sees that changing.

“There wasn’t much room [for newcomers] either on the company level or the adjusting and surveying level, nor on the admiralty law, maritime law level, nor on the brokerage side. Why? Because there was this sort of implicit belief that somehow the property departments of underwriters were going to solve everything.”

That way of thinking was eventually proven false and underwriters’ property sections began to lose money. “Then along came 9/11,” Rekerdres said, “and reinsurance treaties contracted hugely, so that the exposures, the limits, the attachment points suddenly curtailed any interest whatsoever by the property departments.”

He noted that now the marine insurance community is recruiting younger people in the same way his father recruited him. “This is a multi-disciplinary community. It needs creativity; it needs a sense of adventure; and it needs a sense of purpose to make sense out of the risk of placement of the traders and the merchants that we’re trying to serve. It needs diversity much more than it needs intensity.”

Rekedres likened the current environment to “the golden age of marine insurance. It’s come back to the scope that it was at the turn of the 19th century when the marine underwriter was very well respected because he or she understood how risk attaches from the interior, and we’re going to cover this financial interest all the way until it’s extinguished on delivery. That’s a pretty elusive concept.”

Not for everybody
While Rekerdres obviously thrives on the constantly evolving challenges of insuring commodities, he noted that it’s not for everyone. “Some people might say, boy this is great, it sounds like there’s never a dull moment,” he said. “I would say that is true to an extreme. This is not a line of business you would want to get into if having every day and almost every hour of every day different from the rest, if that bothers you. If you only have a casual interest in having unique days, you wouldn’t want to do this.”

On the other hand he had a little advice for those who are interested in entering the multi-faceted world of cargo insurance. You have to “have a very curious mind and you’d have to be willing to accept the multi-disciplinary interest into contract law, into maritime law and into the various conventions that affect the movement of goods from A to B,” he said. “On top of that you would want to ground yourself well in marine insurance and you would have to begin by understanding insurance from the English point of view. That’s the cornerstone of
maritime insurance.”

He added, “An apprenticeship with a marine insurer would be a very good starting point.”

For more information about Rekerdres & Sons, visit the company’s Web site at www.reksons.com. More information about the President’s “E” Award can be found at: www.export.gov/comm_svc/special_initiatives/e_award.html.

Topics USA Agencies Underwriting