In a landmark decision aimed at reforming Nigeria’s insurance sector, the Senate has approved new minimum capital requirements for insurance companies under the Nigeria Insurance Industry Reform Act, 2024. This legislation marks a significant shift, addressing emerging risks and aligning the industry with international standards to ensure resilience and competitiveness.
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A Closer Look at the New Capital Requirements
The newly approved thresholds represent a substantial increase:
- Non-life insurance companies now require a minimum capital of N15 billion, up from N3 billion.
- Life insurance companies need N10 billion, compared to the previous N2 billion.
- Reinsurance companies are now required to have N35 billion, a leap from N10 billion.
The changes were proposed by the Senate Committee on Banking, Insurance, and Other Financial Institutions, chaired by Senator Adetokunbo Abiru. Notably, the initial figures suggested in the Bill were higher but were adjusted after stakeholder deliberations to balance growth and feasibility.
Why the Reforms?
The Senate cited several critical factors necessitating the overhaul:
- Inflation and naira depreciation have reduced the real value of existing capital requirements.
- Global competitiveness: Aligning with international standards is vital for Nigeria’s insurers to operate effectively under the African Continental Free Trade Agreement (AfCFTA).
- Emerging risks: Cybersecurity threats and consumer credit insurance have created a need for robust financial foundations.
- Capital flight: The reforms aim to reduce reliance on foreign insurers, keeping capital within Nigeria.
A Risk-Based Approach to Regulation
The Act also introduces a risk-based regulatory framework, empowering the National Insurance Commission (NAICOM) to set additional capital requirements based on the specific risks faced by each company. This includes:
- Insurance risk: Related to underwriting and claims.
- Market risk: Involving investment portfolios and economic conditions.
- Operational risk: Stemming from internal processes and external threats.
The approved capital must be deposited with the Central Bank of Nigeria, ensuring compliance and accountability.
Industry Reactions and Concerns
While the reforms have been praised as a step forward, they have not been without opposition. The Nigerian Insurers Association (NIA) raised concerns during a public hearing at the National Assembly, advocating for lower capital requirements and emphasizing the need to deepen insurance penetration in Nigeria.
The NIA Chairman, Kunle Ahmed, proposed alternative thresholds:
- N8 billion for life insurance.
- N10 billion for non-life insurance.
- N20 billion for reinsurance.
He noted, “We should focus on expanding insurance adoption in Nigeria rather than creating barriers that could stifle growth.”
Implications for Policyholders and the Economy
The new measures are designed to safeguard policyholders by ensuring that insurers have the financial capacity to meet claims. Additionally, the reforms are expected to:
- Encourage local retention: Reducing reliance on foreign insurers and curbing capital flight.
- Promote innovation: Stronger financial foundations allow companies to invest in modern solutions for emerging risks like cyber insurance.
- Boost economic growth: A robust insurance sector supports broader economic stability and growth.
Looking Ahead
As the reforms take effect, all eyes are on the implementation process. With NAICOM at the helm, the transition to higher capital requirements and a risk-based regulatory framework will define the future of Nigeria’s insurance industry.
For more details, read the full story on Punch.
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