Insurance operators are advocating for the registration of more reinsurance companies in Nigeria following the growing chorus to increase the minimum capital required for insurance companies.
According to BusinessAmLive, the move, they argue, will boost local underwriting capacity, enabling Nigerian insurers to retain more risks, as opposed to ceding them to foreign reinsurers.
Kunle Ahmed, the newly appointed chairman of the Nigerian Insurers Association (NIA), commented that Nigeria’s current capital requirements for insurance companies are reasonably competitive when compared to other African countries. However, he added that the market size in other countries is significantly larger, which puts Nigeria at a disadvantage. Ahmed explained that insurance companies do not require excessive amounts of capital to operate, highlighting that the insurance business is built on the principle of risk sharing. As such, he stressed the importance of having more local reinsurance firms in Nigeria, as these companies can help absorb the risks, enabling local insurers to retain more of the insurance premiums within the country.
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In his analysis, Ahmed noted that South Africa’s insurance market is estimated to be around $50 billion, Kenya’s is over $1 billion, while Nigeria’s non-life insurance market is only $0.63 billion and life insurance market is $0.43 billion. Given these figures, he stressed that the Nigerian insurance sector is not sufficiently large to accommodate the proposed increase in capital requirements without resulting in significant adverse effects.
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“This means we have significant capital chasing limited transactions. Insurance is an international business, and we need to consider what is obtainable in other countries, even within Africa,” he posited. Ahmed noted further that Morocco’s minimum capital requirements for life and non-life insurance businesses are set at $5 million each. In comparison, Kenya’s minimum capital requirements for life insurance and non-life insurance are set at $3.8 million and $2.3 million respectively. Ahmed also pointed out that South Africa, which has one of the largest insurance markets in Africa, has the lowest capital requirements, suggesting that there is no direct correlation between capital requirements and market size.
Ahmed remarked that capital alone does not determine the capacity of an organisation or company, stating, “I agree that it determines your retention, but it’s not the single determinant of your capacity. What we risk is that we’re going to have insurance companies that are not deepening 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.”
In contrast to the capital requirements of N25 billion for non-life insurance, N15 billion for life insurance, and N40 billion for reinsurance in the bill, Ahmed suggested a more measured approach that would still position Nigeria as the most capitalised insurance market in Africa. Specifically, he proposed a minimum capital requirement of N10 billion for non-life insurance and N8 billion for life insurance. Ahmed stated that the primary focus should be on deepening the insurance industry in Nigeria, rather than simply imposing higher capital requirements.
