Nigeria Gives Insurers a Year to Boost Capital Fivefold

Nigeria increased capital requirements for insurance businesses fivefold and gave operators a year to comply or risk losing their licenses.

The capital threshold for non-life insurers was raised to 15 billion naira ($9.8 million) from 3 billion naira that of life insurers to 10 billion naira from 2 billion naira and reinsurers to 35 billion naira from 10 billion naira, according to the industry law emailed by the National Insurance Commission, the regulator.

An insurer registered before the commencement of the Insurance Industry Reform Act needs to comply with the rules within 12 months, it said.

”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, said. ”Recapitalization, combined with compulsory insurance enforcement, means stronger balance sheets, better claims-paying ability, more trust from the public,” she said.

A gauge for the insurance sector on the Lagos-based Nigerian Exchange closed almost 8% higher, while the broader all-share index declined 0.1%.

The legislation, approved by President Bola Tinubu this month, is the latest in a series of reforms by the West African nation to strengthen its financial sector and grow the economy to $1 trillion by 2030 from $243 billion. Others include a 10-fold increase in banks’ capital requirements, relaxing currency controls, removing costly fuel subsidies and tax reforms.

The NIC also set up an 11-member committee to oversee the implementation of the recapitalization to ensure transparency in the sourcing and verification of capital, it said.

Photograph: Nnamdi Azikwe Street by Idumota market in Lagos, Nigeria. Photo credit: Adetona Omokanye/Bloomberg