Nigeria’s insurance sector set for transformation as reform bill becomes law

Nigeria’s insurance industry is set for a major transformation following the passage of the Insurance Reform Bill Act 2024 into law.

The new legislation, which was recently approved by the House of Representatives after securing Senate approval in December 2024, introduces a comprehensive legal and regulatory framework aimed at strengthening the sector.

The National Insurance Commission (NAICOM) has expressed confidence that the reforms will position the industry to make a greater impact on Nigeria’s financial landscape. With the new law in place, the insurance sector is expected to operate under a more structured and efficient system, offering stronger protection for policyholders while fostering industry growth and innovation.

A key aspect of the reform is the repeal of outdated laws that previously governed the sector. The new act replaces multiple legislations, including the Insurance Act,  Cap 117, Laws of the Federation of Nigeria, 2004; the Marine Insurance Act, Cap M3, Laws of the Federation of Nigeria, 2004; the Motor Vehicle (Third Party) Insurance Act, Cap M22, Laws of the Federation of Nigeria, 2004; the National Insurance Corporation of Nigeria Act, and the Nigerian Insurance Reinsurance Corporation Act.

With the enactment of the new law, Nigeria’s insurance industry is set to experience a more structured and efficient operational framework. The reform is designed to offer better protection for policyholders, enhance industry competitiveness, and foster innovation. The House reviewed the bill’s provisions clause by clause before concurring with the Senate’s earlier approval and passing it into law.

The legislation introduces a wide array of reforms, particularly in the areas of licensing, regulatory oversight, capital requirements, and penalties for non-compliance. The bill was presented to the House by Julius Ihonvbere, the House Spokesman representing Owan Federal Constituency, and was adopted following recommendations from the Committee on Banking, Insurance, and Other Financial Institutions.

One of the core provisions of the Act is the establishment of stringent licensing regulations for insurance companies.According to Part III of the Act, any entity wishing to engage in insurance or reinsurance activities in Nigeria must obtain a license from the designated regulatory commission.

It states that “A person shall not commence or carry on insurance, or reinsurance or related business in Nigeria unless licenced by the Commission as an insurer or a reinsurer under this Bill.”

To qualify for licensing, the bill specifies that a company must be incorporated as a limited liability entity under the Companies and Allied Matters Act 2020 or established under other relevant Nigerian laws. Additionally, it must maintain the minimum capital prescribed by the Commission, deposit the required statutory funds with the Central Bank of Nigeria, and meet other specified conditions, including the submission of a business plan outlining its market focus.

To enhance transparency, the bill directs the Commission to publish a Service Charter, which must include details on available services and requirements. It states that “The Commission shall publish and make available to the general public, a Service Charter which shall provide for products and services of the Commission; a complete list of requirements to obtain the products and services including permits, licenses, waivers, tax-related processes, filings, approvals, registration, certification, and any other products and services, in accordance with the functions of the Commission; and shall include all processes, documents, fees and timelines required to obtain such products and services.”

Furthermore, once all requirements are met, the Commission must issue a licence “within the relevant timeline for the type of license being applied for in line with the Commission’s Service Charter.”

The bill also provides for the cancellation of an operating licence under certain conditions. It states that a licence may be revoked if an insurer “is not conducting insurance business in accordance with sound insurance principles,” has failed to meet the prescribed capital or solvency requirements, or “has ceased to carry on the business of insurance and the primary purpose for which it was registered for at least 1 year in Nigeria.”

Engaging in insurance business without proper licensing constitutes an offence under the bill. Individuals found guilty face fines of ₦25 million or imprisonment for up to two years, or both. For companies or firms, each responsible principal officer may be fined ₦50 million, imprisoned for up to two years, or subjected to both penalties.

The bill, in Section 15, Part  establishes stringent capital requirements for insurance businesses operating in Nigeria. It mandates that insurers must maintain a minimum capital threshold to continue operations.

For non-life insurance businesses, the required capital must be the higher of N15 billion or the risk-based capital as determined by the regulatory commission. Similarly, for life assurance businesses, the capital requirement is set at the higher of N10 billion or the risk-based capital determined by the commission.

Reinsurance companies face even higher requirements, with the bill stipulating a minimum capital of N35 billion or the risk-based capital assessed by the commission.

The determination of risk-based capital will take into account several financial and operational factors, including capital requirements for insurance risk, market risk, credit risk, and operational risk. Additionally, the commission will apply capital charges on assets and liabilities as deemed necessary from time to time.

In Section 15, Part IV, the Act sets out the minimum capital requirements for insurance businesses in Nigeria. Non-life insurance companies must maintain a minimum capital of either ₦15 billion or a risk-based capital amount determined by the commission. Life assurance businesses are required to hold a minimum capital of ₦10 billion, while reinsurance companies must meet a capital threshold of either ₦35 billion or a risk-based capital level set by the commission.

To determine the required risk-based capital, the commission will consider factors such as insurance risk, market risk, credit risk, and operational risk, applying capital charges on assets and liabilities as deemed necessary.

Section 16 of the Act stipulates that any insurer seeking to commence operations in Nigeria after the law takes effect must deposit 50 percent of the minimum capital requirement with the Central Bank of Nigeria (CBN). Upon successful registration, 80 percent of this deposit will be refunded with interest within 60 days. Existing insurance companies must deposit an amount equivalent to 10 percent of the minimum capital requirement with the CBN.

The statutory deposit will accrue interest at the Central Bank’s minimum lending rate, adjusted annually on January 1. Additionally, the commission may authorize the investment of these deposits in treasury bills or other secured investments backed by the Federal Government.

Section 16 of the proposed legislation outlines the statutory deposit requirements for insurers intending to operate in Nigeria.

According to the bill, any insurer seeking to commence insurance business after the bill takes effect must deposit 50 per cent  of the minimum capital requirement specified in Section 15 with the Central Bank of Nigeria (CBN).

Upon successful registration, 80 per cent of this statutory deposit will be refunded with interest within 60 days of registration. However, for existing insurance companies, the legislation mandates a statutory deposit of 10 per cent  of the minimum capital requirement set out in Section 15, also to be deposited with the CBN.

The bill further stipulates that any statutory deposit made under this provision will earn interest at the CBN’s minimum lending rate, effective from January 1st of each year. Additionally, the commission has the authority to approve the investment of these deposits in treasury bills or other government-guaranteed secured investments.

The passage of the bill has been met with optimism within the insurance industry. NAICOM has expressed enthusiasm about the prospects of the bill receiving presidential assent, paving the way for implementation.

Industry stakeholders have also  welcomed the reforms, noting that they align with global best practices and will position Nigeria’s insurance sector for sustainable growth. The new legal framework is expected to instill confidence in policyholders, attract more investors, and promote financial stability in the sector.