Nigeria’s insurance industry is entering a new phase of regulatory reform after insurers raised more than N1.08 trillion in fresh capital during a 12-month recapitalisation exercise.
The next major step will be the introduction of a risk-based capital (RBC) framework, which is expected to change how insurers assess risks, allocate capital and structure their businesses.
The National Insurance Commission (NAICOM) is expected to release the RBC framework by the end of September 2026. Under the new system, insurers will be assessed individually to determine whether the capital they hold is sufficient for the risks covered by their businesses.
Companies with higher-risk exposures could be required to maintain additional capital, while others may choose to reduce their exposure to certain businesses rather than raise more funds.
Olusegun Omosehin, Commissioner for Insurance and Chief Executive Officer of NAICOM, said the completion of the recapitalisation exercise marks the beginning of another stage of the industry’s regulatory reforms.
“Having concluded the recent recapitalisation in the industry, we are now going to risk-based capital as provided under NIIRA,” Omosehin said.
The RBC system differs from the existing minimum capital requirement because it links an insurer’s capital needs to the level and nature of risks it carries.
Babatunde Fajemirokun, Managing Director and Chief Executive Officer of AIICO Insurance Plc, said the recapitalisation should be viewed as the foundation for a more resilient insurance industry, with risk-based capital becoming an important part of the next stage.
He said insurers should not regard meeting the new minimum capital requirements as the conclusion of the reform process.
“Minimum capital under NIIRA is simply the floor,” he said.
Usman Jankara, Deputy Commissioner for Insurance, Technical Operations at NAICOM, explained that the regulator would assess individual insurers to determine whether their existing capital adequately covers their risk exposure.
The assessment will include what NAICOM describes as “risk charting”, under which higher-risk businesses attract additional capital charges.
“To do that, there’s a concept we call risk charting. So, if your risk is high, there are charges that will apply to your capital. For example, your capital is meant to be N100. If your risk chart is high, you might have a risk charge of up to 30 percent, which then means you need N130 rather than the N100 that is the MCR as it is currently. That’s how risk-based capital works,” he said.
NAICOM is also conducting a quantitative impact study as part of the development of the new framework.
“That technically just collates data on your historical loss ratio as an underwriter. If I am Usman Insurance Company, for instance, we assess your historical loss ratio over the last 10 years, and we then see the extent to which the capital you’ve maintained over the last 10 years has been enough to meet the liabilities or risk exposure you’ve been exposed to,” Jankara said.
The historical data will help the regulator determine whether insurers have maintained sufficient capital to cover their liabilities and risk exposure and identify any additional margins that may be required.
“That then enables us to say, okay, on the basis of your 10-year experience, the capital you currently hold will not be enough. So, what are the additional margins, or what we call risk charges, that will then need to be added to enable you to meet the minimum that is required by the regulator?” he said.
Insurers will also be expected to carry out their own internal assessments to determine the capital needed for their individual risk profiles.
“That will inform their own plan towards complying with risk-based capital on an ongoing basis,” he said.
NAICOM will conduct its own assessments and provide insurers with a toolkit to help them understand and evaluate the requirements.
“Now, the Commission will also do its own assessment, and of course, there is what we call the toolkit that we are going to expose to the market, which they can also use to do an assessment, so there are no surprises,” he said.
Insurers whose existing capital falls below the level required under the RBC framework will be given a period to meet the requirements before sanctions are applied.
“On that basis, when your current capital is lower than your RBC, that is, your risk-based capital, you will then be informed. There will be a timeline to comply,” Jankara said.
“So, it’s not just waking up out of the blue and you’re then told your capital is low, you’re going out of business, or they are going to punish you. The punishment will come, and NIIRA has clearly provided for that, when the timeline you are required to make good comes and you fail to do so.”
However, compliance with the RBC framework will not necessarily require every insurer to raise additional funds. Companies could instead reduce their exposure to high-risk areas of business and therefore lower their capital requirements.
“But let me say that, for risk-based capital, complying with it does not necessarily mean bringing in additional capital,” he said.
Jankara used aviation insurance as an example, noting that an insurer with significant exposure to the sector could decide to reduce its participation rather than commit additional capital.
“So, if you are dealing in aviation, for instance, that is very risky. When an assessment is done and you realise that your risk is higher, that means you will decide, ‘I don’t want to do aviation because I don’t want to bring in additional capital.’ So, you reduce your exposure to that part of the business that requires additional capital,” he said.
The shift to risk-based capital is therefore expected to push insurers towards more deliberate decisions about the types and levels of risks they accept, while giving regulators a more individualised approach to assessing the financial strength of each company.
For the industry, the completion of the N1.08 trillion recapitalisation exercise marks the end of one stage of reform and the beginning of another, with insurers now expected to align their capital, risk exposure and business strategies with the new regulatory framework.
