The Federal Government of Nigeria has increased the minimum capital requirements for insurance companies by fivefold, giving operators 12 months to comply or risk losing their licenses.
The directive, issued by the National Insurance Commission (NAICOM), is part of sweeping reforms under the newly enacted Insurance Industry Reform Act, signed into law by President Bola Ahmed Tinubu earlier this month.
Under the new framework, non-life insurers must raise their capital from N3 billion to N15 billion, life insurers from N2 billion to N10 billion, and reinsurers from N10 billion to N35 billion. The legislation is designed to enhance the sector’s risk-bearing capacity, improve claims settlement, and boost investor confidence.
“A capitalized insurance sector means insurers can take on bigger risks, give businesses the confidence to expand, and create the stability the economy needs,” Ikeoluwa Alabi, an analyst at Afrinvest West Africa told Bloomberg.
“Recapitalization, combined with compulsory insurance enforcement, means stronger balance sheets, better claims-paying ability, and more trust from the public.”
The announcement triggered a positive response in the capital markets. A gauge tracking insurance stocks on the Nigerian Exchange (NGX) closed nearly 8% higher, signaling investor optimism. This came even as the broader All-Share Index declined by 0.1%, underscoring the sector’s bullish outlook amid broader market volatility.
The recapitalization directive is part of a broader economic reform agenda championed by President Tinubu, aimed at expanding Nigeria’s economy from $243 billion to $1 trillion by 2030.
Other reforms include a tenfold increase in bank capital requirements, relaxation of currency controls, removal of fuel subsidies, and tax restructuring.
To ensure transparency and accountability, NAICOM has established an 11-member committee to oversee the implementation of the recapitalization process. The committee will monitor the sourcing and verification of capital, ensuring that insurers meet the new thresholds through legitimate and sustainable means.
The reform is expected to trigger a wave of mergers and acquisitions, as smaller firms seek to consolidate resources to meet the new benchmarks. Industry leaders have expressed support for the legislation, noting its potential to deepen insurance penetration and align Nigeria with global standards.
The new capital thresholds replace requirements that have remained unchanged since 2007, despite inflationary pressures and increased operational risks.
The reform also introduces a risk-based capital approach, allowing firms to align their capital levels with their risk appetite, while maintaining the new thresholds as minimum entry requirements.