Insurance reform must strengthen the sector, not shrink it

The ongoing recapitalisation programme triggered by the Nigerian Insurance Industry Reform Act has begun to reshape the structure of the sector in ways that were perhaps inevitable but also deeply revealing. While some operators insist they have met the new capital thresholds, a growing number are quietly restructuring their businesses (selling portfolios, shedding licences and offloading risky segments) to comply with the new regulatory demands.

This trend, while understandable from a corporate survival perspective, raises important questions about the long-term direction of Nigeria’s insurance market and whether the recapitalisation exercise will ultimately deepen the industry or simply narrow its scope.

“At the centre of this reform process, the National Insurance Commission (NAICOM)’s objective is clear: to ensure that insurance companies carry risks that are properly matched with adequate capital.”

The reform was initiated by the administration of President Bola Tinubu, which signed the NIIRA into law in August 2025. The legislation introduced significantly higher Minimum Capital Requirements (MCR) for insurers while transitioning the industry to a Risk-Based Capital (RBC) framework. Under the new structure, life insurance companies must maintain at least N10 billion in capital, general insurers N15 billion, composite insurers N25 billion and reinsurance companies N35 billion. Operators have until July 31, 2026, to comply.

On paper, the reform appears long overdue, as Nigeria’s insurance sector has historically been undercapitalised relative to the size of the economy. With Africa’s largest population and one of the continent’s biggest economies, the nation’s insurance penetration remains embarrassingly low (hovering around 0.5% of GDP), far below the African average of about 3 per cent.

Weak capital bases have also contributed to the industry’s credibility problem. For years, policyholders have complained about delayed claims settlement, weak underwriting capacity and the collapse of poorly managed firms. Strengthening insurers through recapitalisation is therefore necessary if the sector is to regain public trust and support larger economic activities.

However, the early responses from operators reveal the deeper structural fragility of the industry. Instead of raising fresh capital, some companies are opting for a strategic retreat. A few composite insurers have reportedly put their life insurance licences up for sale, choosing to concentrate on general insurance business. Others are transferring annuity portfolios or exiting lines of business considered too capital-intensive.

The wave of portfolio transfers currently taking place illustrates the adjustment underway. Cornerstone Insurance Plc recently acquired the annuity portfolio of Lasaco Assurance Plc, while also taking over the annuity business of Niger Insurance Plc. Similarly, Leadway Assurance Company Limited assumed responsibility for the annuity portfolio of African Alliance Insurance Plc, following regulatory intervention to protect retirees whose benefits had been endangered.

These transactions highlight two realities. On the positive side, stronger companies are stepping in to protect policyholders and prevent systemic failures. But on the negative side, they also reveal how many insurers remain financially fragile even before the recapitalisation deadline arrives.

At the centre of this reform process, the National Insurance Commission (NAICOM)’s objective is clear: to ensure that insurance companies carry risks that are properly matched with adequate capital. Under the new risk-based capital framework, insurers must demonstrate that their financial resources can absorb potential claims and liabilities.

This approach aligns Nigeria with global best practices in insurance regulation. In advanced markets, risk-based capital requirements ensure that insurers maintain adequate buffers to protect policyholders. Companies that take on more complex or volatile risks must hold more capital to support those exposures. Yet reform must also be sensitive to market realities.

Nigeria’s insurance sector is still relatively shallow. Many operators struggle not only with capitalisation but also with low premium volumes due to weak public awareness and limited insurance culture. Without significant growth in insurance demand, recapitalisation alone cannot transform the industry.

If companies are forced to sell portfolios or abandon business segments merely to meet regulatory thresholds, the sector could shrink instead of expand.

The most critical segment at stake is the life insurance and annuity market. These products are essential for long-term financial stability, retirement planning and pension sustainability. If insurers begin to abandon life business due to capital pressures, millions of Nigerians could be left with fewer options for retirement security.

This concern becomes particularly relevant given the growing annuity market linked to Nigeria’s pension system, overseen by the National Pension Commission. As more retirees choose annuity plans under the Contributory Pension Scheme, the insurance sector must be robust enough to manage long-term liabilities.

Recapitalisation should therefore strengthen and not weaken the industry’s ability to serve this growing segment.

The ideal outcome of the reform should be a healthier, more credible insurance sector capable of underwriting larger risks, supporting infrastructure development and protecting households and businesses against uncertainty.

Therefore, the regulators must ensure that recapitalisation does not become a mere numerical exercise. Raising capital thresholds is important, but governance, transparency and risk management are equally critical.

And policymakers must address the demand side of the market. Nigeria’s insurance penetration will remain low unless enforcement of compulsory insurance policies improves, and the industry must embrace innovation and digital distribution.