KEY POINTS
- New capital requirements set at N15 billion ($9.6 million), N10 billion ($6.4 million ) and N35 billion $22.5 million)
- Lawmakers aim to reduce reliance on foreign insurers and capital flight.
- Reforms position Nigeria’s insurance sector for AfCFTA competition.
The Nigerian Senate has approved sweeping reforms for the insurance sector, introducing new minimum capital requirements aimed at strengthening the industry’s financial base and reducing its reliance on foreign insurers.
Under the Nigeria Insurance Industry Reform Act, 2024, insurers will face higher capital thresholds, with non-life insurance businesses required to maintain a minimum of N15 billion, life insurance at N10 billion, and reinsurance at N35 billion.
These figures represent a significant increase from the current requirements of N3 billion, N2 billion, and N10 billion, respectively.
The changes are part of broader efforts to modernize Nigeria’s insurance framework and align it with international standards.
The Senate emphasized that the reforms were necessary to address inflation, naira depreciation, and emerging risks such as cyber insurance and consumer credit insurance.
Chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions, Senator Adetokunbo Abiru, explained that the initial capital proposals were even higher but were later reduced to balance industry needs with regulatory demands.
According to Punch, the reforms also grant the regulatory commission the power to introduce risk-based capital adjustments, ensuring that companies are financially prepared for potential insurance, market, and operational risks.
New capital thresholds and risk-based measures
Under the new framework, insurance firms must deposit their capital directly with the Central Bank of Nigeria (CBN). This move aims to provide better oversight and financial security.
The regulatory commission will also have the authority to impose risk-based capital adjustments, allowing it to assess and adjust required capital levels based on a company’s exposure to market risks, operational risks, and insurance-related risks.
In a statement, lawmakers explained that these risk-based measures are essential to protecting policyholders and ensuring industry stability in an ever-changing global market.
The Senate noted that the global financial landscape is evolving, with new threats such as cyber risks and consumer credit insurance emerging. By strengthening capital requirements, the Nigerian government aims to boost the industry’s capacity to respond to these challenges.
The bill also seeks to position Nigeria’s insurance industry for better competition under the African Continental Free Trade Agreement (AfCFTA).
Lawmakers believe that stronger capital bases will enable local insurers to reduce capital flight byo cmpeting more effectively with foreign insurance firms operating in Nigeria.
Why the capital hike matters for Nigeria’s economy
The decision to raise capital requirements is expected to have a ripple effect across the insurance sector. For one, it may prompt consolidation as smaller insurance firms merge to meet the higher thresholds.
Industry analysts also believe the reforms will boost investor confidence and attract more foreign direct investment into Nigeria’s insurance sector.
The new rules align with the Finance Act of 2022, which redefined capital composition for financial institutions. According to the Senate, the previous capital requirements were no longer adequate, especially as inflation eroded their real value.
Lawmakers stressed that the insurance sector must remain competitive, especially within the context of the AfCFTA, which aims to increase trade and investment within Africa.
With capital requirements now set at N15 billion for non-life insurance, N10 billion for life insurance, and N35 billion for reinsurance, Nigerian firms are expected to be better positioned to handle large underwriting risks and reduce dependence on foreign insurers.
As part of the transition process, the Senate stated that insurance firms would be given a grace period to comply with the new regulations.
By reinforcing its capital base, Nigeria’s insurance sector aims to protect policyholders, promote financial stability, and support long-term economic growth.
