The future of North Carolina Mutual Life Insurance Co., a firm that has been an influential part of Durham for more than 100 years, hangs in the balance.
The insurance company — founded in 1898 and an integral member of Durham’s famed Black Wall Street — is currently under “rehabilitation” by the state’s Department of Insurance, which is attempting to bring the company back to good financial standing.
The company’s top executives have been removed from day-to-day operations, and in their place Insurance Department officials are now making decisions for the company. The rehabilitation process has been ongoing for several months. The Triangle Business Journal first reported the Insurance Department’s moves to keep the company afloat.
The Department of Insurance (DOI) takes rehabilitation measures in certain instances when it feels the need to protect policyholders, the department’s general counsel, John Hoomani, told The News & Observer.
“One of the main purposes of the Department is to regulate insurance companies and ensure that they remain in a stable financial condition such that they are able to pay policyholder claims as they come due,” he said in an email. “When an insurance company suffers financially, it is the job of the Department to take some type of regulatory action to protect policyholders.”
In this case, that includes looking for potential buyers and investors and slashing expenses across the financial firm.
DOI is “looking for someone who can infuse sufficient capital to bring it out of rehabilitation such that it can continue operating,” Hoomani added. “Other than that, we are not able to offer any more specifics at this time.”
Hoomani did note that multiple parties have “expressed interest” in NC Mutual and its assets, but he wouldn’t comment further.
Three letters of intent have been filed to purchase the company’s subsidiary, North Carolina Mutual Financial LLC, according to a report that DOI filed as part of the rehabilitation process. One letter was subsequently withdrawn, however, and DOI is still currently evaluating the operations of the company’s other wholly owned subsidiary, North Carolina Mutual Insurance Agency LLC.
Two outside parties have also signed non-discloure agreements with DOI and have expressed “potential interest in making an investment in NC Mutual,” though those talks are still ongoing.
The report shows that DOI is looking to cut costs across the board, including the elimination of seven positions (saving $1.1 million in salaries and benefits), revoking company-issued cell phones and downsizing the office space it rents in the Tower at Mutual Plaza. (NC Mutual sold the 1960s-era building, which bears its name, in 2006 and currently occupies one floor there, The Herald-Sun has previously reported.)
But, as the report notes in its conclusion, “a final decision as to the course of action to take with NC Mutual has not yet been determined.”
An anchor of Black Wall Street
Founded in 1898 by John Merrick, NC Mutual became one of the largest black-owned businesses in the U.S. by serving African Americans that white financial institutions discriminated against. Together with businesses like M&F Bank, the company formed Black Wall Street in Durham, making the city one of the nation’s hubs of the black middle class during the mid-20th century.
Henry McKoy, director of entrepreneurship at N.C. Central University, called NC Mutual a “crucial” part of black middle class success in Durham, noting that its financial arm reinvested in the black community, spurring other entrepreneurs and businesses to grow.
“NC Mutual was an anchor to what allowed the black community to share some prosperity and have some economic rise,” McKoy said in a phone interview. But the company, like many black-owned businesses that rose up during segregation, has faced its struggles in recent years.
In 2000, NC Mutual had $77.3 million in revenue and 258 employees — and was the largest black-owned insurance company in the country, according to research done by McKoy. But it has lost money for several years and now has only a few dozen employees, The Herald-Sun has reported, and many of its black-owned competitors are no longer in business.
While McKoy said he is hopeful regulators will find a way to successfully turn the business around, NC Mutual would be a “major loss and ... shines a light on what have been the challenges of African-American-led businesses following integration.”
“At least in economic terms, integration went one way,” McKoy said, “and that is the dollars of the African-American community went out of the community and into white companies.”
Black companies, he said, just like black individuals, often find it harder to obtain capital to grow their businesses. Multiple studies have shown that minority-owned firms are less likely to apply for loans out of fear of rejection. And when they do apply, they get turned down more frequently than white-owned businesses with the similar credit ratings.
“When you are starving for (capital),” McKoy said, “you can’t hire the best talent, you can’t upgrade your products and technology and you can’t get into new markets.”
In most cases, the next generation of black consumers took their business to larger firms and existing black companies struggled to attract new customers.
“Generations now are disconnected to what folks faced in segregation ... they didn’t grow up with that,” he said. “So the millennial today may care a lot about the (black) community, but at the same time, if they can’t do their transaction on their cell phone, then it might not be something they will be willing to trade off.”
That age divide can also be seen at Durham’s other Black Wall Street stalwart, M&F Bank, whose average customer in 2017 was 60 years old, The Herald-Sun reported.
But, in addition to those specific struggles, the most pressing problem for NC Mutual is a loss of a considerable amount of assets during a deal with an investment manager, according to a letter DOI sent to policy holders.
NC Mutual is currently trying to recover those “misappropriated” assets, and until they are the company will remain in rehabilitation, the letter said. In the meantime, the company is unable to create new policies.
NC Mutual has been attempting to recover around $34 million in assets since 2016 that it says were “improperly transferred” to a group of investment firms, including Stamford Brook Capital, according to a summary of the company’s litigation in the DOI report. The company’s complaint says the money was lost through “breach of contract, fraud ... and other similar causes of action.”
And the stakes for the money’s recovery is high.
If those assets are not recovered, NC Mutual may be liquidated, the DOI letter states.