The Nigerian Senate has approved the Nigeria Insurance Industry Reform Act, 2024, a landmark legislation designed to strengthen the insurance sector and address emerging risks. The Act introduces new minimum capital requirements, a risk-based regulatory framework, and repeals outdated laws governing the industry.
Under the new regulations, minimum capital thresholds for insurance businesses have been significantly increased. Non-life insurance companies are now required to have a minimum capital of N15 billion, life insurance companies N10 billion, and reinsurance companies N35 billion. These figures mark a sharp rise from the previous requirements of N3 billion, N2 billion, and N10 billion, respectively.
The Bill, presented by the Senate Committee on Banking, Insurance, and Other Financial Institutions, chaired by Senator Adetokunbo Abiru, reflects adjustments from higher initial proposals. It also grants the National Insurance Commission (NAICOM) the authority to enforce additional risk-based capital requirements, addressing risks in insurance, markets, and operations.
Reasons for the Reforms
The Senate justified the reforms by citing inflation, the naira’s depreciation, and the need to enhance Nigeria’s international competitiveness. Emerging risks such as cyber insurance and consumer credit insurance, along with provisions in the Finance Act 2022, which redefined capital composition for financial institutions, were also highlighted as driving factors.
“The increase in minimum capital is crucial to safeguard policyholders, reduce reliance on foreign insurers, and curb capital flight,” the Senate said in a statement. Lawmakers also emphasized that the reforms align with Nigeria’s goals under the African Continental Free Trade Agreement (AfCFTA), positioning the country’s insurance sector as a more competitive player in the global market.
Capital Management and Oversight
The Act mandates that the minimum capital must be deposited with the Central Bank of Nigeria (CBN) to ensure transparency and accountability. It also introduces a dynamic approach to risk management, requiring NAICOM to evaluate capital needs periodically based on market conditions and operational risks.
Opposition from Stakeholders
During a public hearing on the Bill in Abuja, the Nigerian Insurers Association (NIA) expressed concerns over the increased capital requirements. NIA Chairman, Kunle Ahmed, proposed lower thresholds of N8 billion for life businesses, N10 billion for non-life, and N20 billion for reinsurance.
“Insurance is an international business, and while capital determines retention capacity, it is not the sole determinant. Our focus should be on deepening insurance penetration in Nigeria rather than just increasing capital,” Ahmed argued. He warned that higher requirements might shift the industry’s focus from core insurance activities to unrelated investments.
Industry Implications
Experts believe the reforms will foster a more resilient insurance sector capable of addressing modern challenges, including the increasing demand for risk coverage in technology and consumer finance. However, industry players are divided over the potential impact on smaller insurers, with some fearing consolidation or market exits.
The Nigeria Insurance Industry Reform Act, 2024, represents a decisive step toward modernizing the country’s insurance framework, with the dual goals of protecting policyholders and positioning Nigeria as a regional leader in the sector. The Act is now set to proceed to the House of Representatives for concurrence before receiving presidential assent.
