The Senate has approved new minimum capital requirements for insurance companies in Nigeria as part of reforms to strengthen the industry and address emerging risks.
The legislation, titled the Nigeria Insurance Industry Reform Act, 2024, repeals and replaces several existing laws governing the sector.
It also introduces a risk-based regulatory framework and adjusts capital thresholds for insurance businesses.
The newly approved requirements peg the minimum capital for non-life insurance businesses at N15bn, life insurance businesses at N10bn, and reinsurance businesses at N35bn. These figures mark a significant increase from the existing requirements of N3bn, N2bn, and N10bn, respectively.
The Bill, presented by the Senate Committee on Banking, Insurance, and Other Financial Institutions, chaired by Senator Adetokunbo Abiru, reduced the higher figures initially proposed. It also allows the regulatory commission, National Insurance Commission, to implement additional risk-based capital requirements to account for insurance, market, and operational risks.
The Senate said the adjustments were necessitated by inflation, the depreciation of the naira, the need to improve international competitiveness, and emerging risks such as cyber insurance and consumer credit insurance.
It also cited the Finance Act of 2022, which redefined the composition of capital for financial institutions, as a factor.
The approved bill mandates that the minimum capital be deposited with the Central Bank of Nigeria.
Lawmakers said the reforms would strengthen the industry and reduce reliance on foreign insurers, curbing capital flight and enhancing Nigeria’s position under the African Continental Free Trade Agreement.
The upper legislative house added that in determining 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 described the new measures as critical to safeguarding policyholders and ensuring the insurance industry’s resilience in a rapidly evolving global market.
During a public hearing on the Bill held at the National Assembly in Abuja, the Nigerian Insurers Association has expressed opposition to the minimum capital requirements.
The Chairman of NIA, Kunle Ahmed, proposed a minimum capital of N8bn for life business, N10bn for non-life, and N20bn for reinsurance and the implementation of a risk-based capital regime that would enable them to undertake risk in line with their capital.
He said, “Insurance is an international business, and we need to consider what is obtainable in other countries, even within Africa. I agree that it (the capital base) determines your retention, but it is not the single determinant of your capacity.
“What we risk is that we are going to have insurance companies that are not deepening their insurance business in Nigeria but are just sitting down and investing the money that they have in other things. I believe that we should focus a lot more on deepening insurance in Nigeria.”