Elatuyi Olakunle
Nigeria’s recent move to raise the minimum capital base for insurance companies is both a welcome and long-overdue reform. The reform signals regulatory seriousness, a renewed commitment to protecting both shareholders and policyholders, and an acknowledgment that the insurance sector can no longer operate at subscale in an increasingly complex, risk-heavy economy.
However, while the 2025 recapitalisation is a step in the right direction, the new capital thresholds remain modest by global standards, addressing yesterday’s problems more than tomorrow’s realities.
A closer look at Nigeria’s insurance ecosystem reveals a persistent structural challenge: foreign reinsurers dominate an estimated 65 per cent of the reinsurance market. This dominance reflects the limited capacity of local insurers to underwrite high-value risks in sectors such as oil and gas, aviation, infrastructure, and energy. As a result, significant insurance premiums are ceded offshore each year, placing pressure on foreign exchange and limiting the sector’s contribution to domestic economic growth.
While the 2025 recapitalisation may improve capacity at the margin, most domestic insurers will still struggle to retain large risks or meaningfully support Nigeria’s economic ambitions. Without deeper reforms, premium outflows will persist, and local insurers will remain marginal players in financing national development.
Capital Markets: A Missed Opportunity
Nigeria’s insurance sector also represents a missed opportunity for capital-market development. Insurance companies are natural long-term investors and can drive liquidity, transparency, and stronger corporate governance. Leading firms such as Leadway Assurance and Zenith General Insurance, could strengthen both the insurance industry and the Nigerian Exchange (NGX) by listing their shares.
Public listings would expand investor access to a vital but underrepresented sector, retain more premiums domestically, and deepen capital markets at a time when Nigeria urgently needs long-term funding for infrastructure and growth.
Lessons from the Past
The lessons from Nigeria’s last major insurance recapitalisation in 2007 remain highly relevant. That reform, combined with the “No Premium, No Cover” policy, attracted banking-sector investment, forced undercapitalised firms out of the market, encouraged consolidation, and significantly improved underwriting discipline.
Most importantly, it demonstrated a fundamental truth: capital adequacy is essential for insurers to participate meaningfully in both domestic and global markets.
Yet even after the 2025 recapitalisation, Nigeria’s insurance capital base remains modest compared to international peers. In mature and many emerging markets, insurers operate with sufficient capital to underwrite large infrastructure and energy projects, absorb catastrophic losses, invest in actuarial and technological capacity, and meet strict solvency standards. Nigerian insurers, by contrast, remain too small to compete cross-border, support mega-projects, or retain high-value risks without heavy reliance on foreign reinsurers.
The consequence is clear: continued premium leakage, foreign-exchange pressure, and local insurers reduced to spectators in their own economy.
Beyond Capital: Structural Weaknesses
Recapitalisation alone does not guarantee competitiveness. Nigeria still has too many insurers chasing limited business, and consolidation, while likely, will not automatically produce stronger institutions. Without parallel reforms in corporate governance, risk management, actuarial capability, product innovation, distribution channels, and digital infrastructure, the industry risks creating firms that are larger in size but not in capability.
The planned transition to a risk-based capital (RBC) framework is a welcome shift from fixed nominal thresholds. However, RBC is data-intensive, complex, and costly to implement, and it does not guarantee solvency if risks are poorly priced or underestimated. Even with recapitalisation and RBC, Nigerian insurers may still struggle to underwrite mega-projects in oil, gas, aviation, and infrastructure without extensive foreign reinsurance support.
Building a Globally Competitive Insurance Sector
Globally competitive insurance markets are ecosystems, not just balance sheets. To transform the sector, Nigeria requires deep capital markets to support long-term investments, reliable data for accurate pricing, strong legal systems for claims enforcement, and skilled professionals in underwriting, actuarial science, and compliance.
Insurance currently contributes only about 0.5–1 per cent of Nigeria’s GDP, far below the 5–10 per cent typical of mature markets. Strengthening domestic insurers would help retain premiums locally, improve financial resilience for public and private assets, and deepen participation in the NGX.
Policy Actions for a $1 Trillion Economy
To position Nigeria’s insurance sector for a projected $1 trillion economy, policymakers should consider the following actions:
- First, capital thresholds, especially for reinsurers underwriting high-risk sectors should be increased, with dollar-linked requirements for oil and gas insurance to reflect foreign-exchange exposure and global risk standards.
- Second, capital requirements must align more closely with actual risk exposure, enabling insurers to retain a larger share of domestic risks.
- Third, major insurers should be encouraged to list on the NGX to deepen the market, improve transparency, and attract long-term investment.
- In addition, government-backed insurance schemes for critical infrastructure and essential public personnel could create predictable demand and strengthen local balance sheets.
- Stronger governance and regulatory oversight are also essential to ensure reforms are consistently implemented and insulated from policy reversals.
- Finally, Nigeria should consider establishing a National Strategic Risk Pool, potentially funded through infrastructure insurance bonds, to support large-scale national projects and reduce dependence on offshore markets.
Conclusion
Recapitalisation without scale, capability, and risk retention will not transform Nigeria’s insurance sector. The 2025 reform may improve stability, but it will not stop premium leakage or meaningfully expand underwriting capacity unless followed by deeper structural reforms.
A $1 trillion economy cannot rely on foreign markets to insure its most valuable assets. Nigeria must build insurers that are large enough, well-governed, and sufficiently capitalised to underwrite national risks at home. The choice is clear: strengthen domestic insurance capacity or continue exporting premiums, profits, and economic influence abroad.
Mr Elatuyi olakunle is a Nigerian Canada based investment expert and writer
