Insurance companies that satisfy the minimum capital requirements may still lack sufficient funds to support the risks they undertake, the National Insurance Commission (NAICOM) has warned, as the industry prepares to operate under a risk-based capital framework.
Olusegun Ayo Omosehin, commissioner for Insurance, said meeting the Minimum Capital Requirement (MCR) does not automatically mean an insurer has adequate capital to support the nature, scale and complexity of its risk exposures.
He made the observation at the 8th Annual Insurance Directors’ Conference in Lagos, organised by the College of Insurance and Financial Management in collaboration with NAICOM.
Omosehin explained that while the MCR represents the minimum capital threshold required for an insurance company to operate, the Risk-Based Capital (RBC) framework assesses whether its capital is sufficient in relation to the risks it carries.
This means an insurer could meet the regulator’s minimum threshold and still have inadequate capital to absorb potential losses arising from its underwriting activities, investments and other exposures.
The commissioner said the distinction would require insurance boards to pay closer attention to how companies deploy capital, manage risks and align business expansion with their financial capacity.
He warned that the strength of an insurer should not be measured by its capital size alone, noting that weak governance, poor internal controls, unsuitable investments and ineffective risk management could undermine even well-capitalised institutions.
Omosehin urged directors to strengthen oversight of underwriting decisions, reinsurance arrangements, investment exposures, liquidity positions and technology risks, while ensuring that internal audit, compliance, risk management and actuarial functions were adequately resourced and independent.
He said boards must also ensure that companies pursue growth strategies that are consistent with their capital positions, operational capabilities and risk appetite.
According to him, the recapitalisation exercise should serve as a foundation for stronger institutions rather than an end in itself, adding that the quality and protection of capital, as well as how it is deployed, would determine whether insurers could meet their obligations.
He said NAICOM’s supervisory attention would extend beyond whether companies had met regulatory capital thresholds to the quality of their capital, effectiveness of risk management systems, governance structures and capacity to fulfil policyholder obligations.
The commission would also pay attention to the accuracy of regulatory returns, financial reporting, actuarial assessments and timely disclosure, he said.
Omosehin cautioned that the recapitalisation exercise did not give insurers permanent protection from regulatory scrutiny, stressing that capital adequacy remained a continuous responsibility.
He further urged directors to recognise their fiduciary, professional and regulatory responsibilities, warning against treating board membership as an honorary position.
He said directors must provide effective oversight of management and ensure that expectations for shareholder returns did not compromise board independence or encourage business strategies that could expose companies to unsustainable risks.
The commissioner also called for the use of the Fit and Proper Framework in appointing directors and senior executives, saying appointments should be based on competence, character, relevant experience and professional integrity rather than personal relationships, influence or status.
Beyond regulatory compliance, Omosehin said stronger capital positions could help insurers increase their capacity to underwrite risks in critical sectors such as infrastructure, energy, manufacturing, agriculture and construction.
He added that a more resilient insurance industry could retain a greater share of domestic risks within the country and reduce reliance on foreign insurance markets.
However, he maintained that policyholder protection should remain central to the industry’s operations, noting that public confidence would ultimately depend on insurers’ ability and willingness to pay legitimate claims.
He urged directors to ensure that the sector’s stronger capital base translated into improved underwriting capacity, effective risk management and better service to policyholders.
