The Nigerian Senate has adopted new minimum capital requirements for insurance companies as part of measures to strengthen the industry and address rising risks.
The Nigeria Insurance Industry Reform Act, 2024, repeals and replaces various existing laws controlling the industry.
It also establishes a risk-based regulatory structure and changes capital thresholds for insurance companies.
The newly authorised standards set a minimum capital of N15 billion for non-life insurance businesses, N10 billion for life insurance businesses, and N35 billion for reinsurance enterprises. These values represent a huge increase above the existing requirements of N3 billion, N2 billion, and N10 billion, respectively.
The Senate Committee on Banking, Insurance, and Other Financial Institutions, chaired by Senator Adetokunbo Abiru, introduced the bill, which reduced the higher values previously recommended. It also enables the National Insurance Commission, the regulatory body, to impose new risk-based capital requirements to account for insurance, market, and operational risks.
The Senate stated that the revisions were required due to inflation, the naira’s depreciation, the need to increase international competitiveness, and emerging risks like cyber insurance and consumer credit insurance.
It also mentioned the Finance Act of 2022, which changed the composition of capital for financial organisations.
According to the approved measure, the minimum capital must be deposited with the Central Bank of Nigeria.
Lawmakers stated that the reforms would strengthen the industry and reduce reliance on foreign insurers, thus reducing capital flight and improving Nigeria’s position under the African Continental Free Trade Agreement.
The upper legislative house further said that in establishing the risk-based capital required, “the commission shall take into consideration the capital for insurance risk, market risk, and operational risk and apply such capital changes on assets and liabilities as shall be determined from time to time.”
It explained that “the increase in minimum capital from the current capital of N2bn to N10bn (life), N3bn to N15bn (non-life), and N10bn to N35bn (reinsurance) is necessitated by depreciation in the value of the currency, the Finance Act 2022, which has redefined the composition of the capital, inflation, international competitiveness, AfCFTA competitiveness, capital flight due to overreliance on foreign insurance, emerging risks such as cyber insurance, insurance, consumer credit insurance, etc.”
The Senate said the new requirements are vital to protecting consumers and guaranteeing the insurance industry’s resiliency in a constantly changing global market.
During a public hearing on the bill in the National Assembly in Abuja, the Nigerian Insurers Association expressed disagreement with the minimum capital requirement.
Kunle Ahmed, Chairman of the NIA, recommended a minimum capital of N8 billion for life business, N10 billion for non-life, and N20 billion for reinsurance, as well as the establishment of a risk-based capital system that would allow them to incur risks in proportion to their capital.
He stated, “Insurance is an international company, and we must analyse what is available in other nations, including Africa. While the capital foundation is important for retention, it is not the only factor affecting capacity. What we fear is that insurance companies will not expand their insurance business in Nigeria but will instead sit back and spend their money in other areas. I believe we should prioritise deepening insurance in Nigeria.”
