The National Insurance Commission (NAICOM) is developing new capital rules that will require insurance companies to hold funds in line with the risks they underwrite, in a shift from the industry’s reliance on prescribed minimum capital requirements.
The proposed risk-based capital (RBC) framework, being developed with support from professional services firm Ernst & Young (EY), is the next regulatory step following Nigeria’s insurance recapitalisation exercise, which saw 50 insurance companies meet the prescribed capital requirements by the July 31 deadline.
Ebelechukwu Nwachukwu, outgoing chairman of the Insurers’ Committee’s Communications and Stakeholders Engagement Sub-Committee, disclosed this during a virtual media briefing on the outcome of the committee’s recent meeting.
She said EY had presented an overview of the framework to insurance company chief executives, adding that a draft would be circulated to industry stakeholders for review before NAICOM adopts it. Further engagements are also planned to help operators understand the proposed requirements.
Under the risk-based model, insurers will be expected to maintain capital that reflects the nature and level of risks they assume, rather than rely solely on meeting a fixed minimum threshold. The approach is intended to ensure that companies have sufficient financial resources to absorb potential losses arising from their underwriting activities.
The proposed rules would require operators to pay closer attention to how their risk exposures, underwriting decisions, reinsurance arrangements and reserving practices affect their capital positions.
Nwachukwu said operators had been advised to begin preparations by assessing their underwriting capacity and reviewing their underwriting manuals, reserving policies, reinsurance arrangements and internal controls.
The framework comes as NAICOM seeks to ensure that the capital raised during recapitalisation strengthens insurers’ ability to underwrite risks and meet their obligations to policyholders.
According to Nwachukwu, Olusegun Omosehin, the commissioner for insurance, congratulated the 50 companies that met the recapitalisation requirements and urged them to translate their stronger capital positions into improved underwriting capacity.
Omosehin also called on insurers to improve claims settlement, expand insurance penetration and maintain disciplined investment practices, particularly as the industry approaches the reinsurance renewal season.
He urged insurance company boards to strengthen oversight of their managing directors, highlighting corporate governance as an important consideration in the industry’s changing regulatory environment.
Beyond capital requirements, NAICOM is encouraging insurers to develop the capacity to underwrite emerging risks, including climate-related and cyber risks, as well as expand health insurance offerings.
The commission is also pursuing the digitalisation of its operations and services to improve engagement with regulated companies, while discussions continue on a proposed Joint Actuarial Development Fund to strengthen the availability of actuarial expertise in Nigeria.
Nwachukwu said NAICOM had committed to supporting the fund, while operators were reviewing its proposed funding formula and exploring assistance from external organisations. The initiative is expected to support universities and develop the actuarial skills required by the insurance industry.
NAICOM has yet to adopt the proposed risk-based capital framework, with stakeholder consultations and further engagements expected to precede its implementation.
