Nigeria's insurance industry has concluded a 12-month recapitalisation exercise, raising over N1.08 trillion in fresh capital. The National Insurance Commission (NAICOM) is now set to release a risk-based capital (RBC) framework by the end of September 2026. This framework will trigger individual assessments of insurers' capital adequacy based on their specific portfolios. The new regime aims to reshape how companies allocate resources, price risks, and structure their operations.
The risk-based capital regime moves the industry away from a uniform minimum capital requirement to a dynamic model linking capital to specific risks an insurer carries. Olusegun Omosehin, Commissioner for Insurance and CEO of NAICOM, noted that the successful recapitalisation exercise was merely the first step. The industry is now transitioning to risk-based capital as provided under the Nigerian Insurance Industry Reform Act (NIIRA) 2025.
Under the new regime, operators with inadequate buffers may be required to raise additional funds, while others might choose to adjust their risk appetite or business models to match their available capital. Babatunde Fajemirokun, managing director/CEO of AIICO Insurance Plc, described the new minimum capital requirement as "simply the floor." He emphasised that the next phase of reform will demand greater resilience, with capital requirements strictly reflecting actual portfolio risks.
Usman Jankara, deputy commissioner for Insurance, Technical Operations at NAICOM, explained that the conclusion of the recapitalisation exercise has paved the way for the regulator to begin individual assessments of insurance companies. The assessment will involve "risk charting," under which insurers with higher-risk exposures will be required to hold additional capital. This will enable NAICOM to determine whether an insurer's existing capital is sufficient to cover its risk profile.
NAICOM is currently undertaking a quantitative impact study as part of the process of developing the RBC framework. The study collates data on historical loss ratios to assess the extent to which an insurer's capital has been enough to meet liabilities or risk exposure. This historical assessment will help the regulator determine whether an insurer's existing capital is sufficient and establish any additional capital margins that may be required.
Insurers will also be expected to undertake their own internal modelling to determine the level of capital required to support their individual risk profiles. NAICOM will conduct its own assessment and make a toolkit available to insurers to enable them to undertake similar assessments and understand the requirements of the framework. Insurers whose existing capital falls below the level required under the RBC framework will be given time to comply.
Meeting RBC requirements does not necessarily mean that insurers must raise fresh capital, as companies can also adjust their business exposures to reduce the amount of capital required. For example, an insurer with high-risk exposure in aviation insurance can choose to reduce its participation in that line of business rather than commit additional capital. Regulatory sanctions will follow only where an insurer fails to meet the requirements within the stipulated period.
Key points
- The new risk-based capital regime will require insurers to hold capital that reflects their specific risk profiles.
- Insurers will be given time to comply with the new requirements, and regulatory sanctions will follow only where an insurer fails to meet the requirements within the stipulated period.
- Meeting RBC requirements does not necessarily mean that insurers must raise fresh capital, as companies can also adjust their business exposures to reduce the amount of capital required.
