Rethinking Risk and Strategy

One actuary details the Nigeria Insurance Industry Reform Act

BY GANIU SHEFIU August 2026

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For many years, Nigeria’s insurance industry, and indeed the financial services industry, has operated in a state of uneasy equilibrium. Capital requirements, though they existed, were usually reported, and regulatory compliance was largely achieved. Yet, beneath this surface lay a more uncomfortable truth: Many insurers were structurally undercapitalized relative to the risks they carried.¹

The numbers told only part of the story. Minimum capital requirements established in 2003—₦2 billion for life insurers, N3 billion for general insurers, ₦5 billion for composite insurance companies and ₦10 billion for reinsurers—remained largely unchanged for over a decade. In an environment characterized by inflation, currency volatility and increasingly complex risk exposures, these thresholds became, in my view, progressively less meaningful. This is what the Nigerian Insurance Act of 2003 prescribed: the minimum capital requirement. To my understanding, it is based on a rule of thumb and aligns with the recapitalization underway in the banking sector.

But the deeper issue I saw was not the level of capital—it was the logic of capital. Capital functioned as a static regulatory hurdle rather than a dynamic reflection of risk. Insurers could meet minimum thresholds while simultaneously engaging in underpriced, capital-intensive business. Solvency, in practice, was often a compliance outcome rather than a risk-sensitive measure of resilience.

The Nigerian Insurance Industry Reform Act (NIIRA) of 2025 was enacted, in my opinion, to address this equilibrium. As I see it, it does not simply raise capital requirements. It appears intended to address concerns by increasing minimum capital levels and introducing a more risk-sensitive framework. It challenges assumptions that may have historically underpinned insurer behaviors. Some regulators and others have argued that parts of the market were undercapitalized relative to their risk profiles. This article considers how NIIRA may respond to those concerns.

Raising the Floor

NIIRA’s most visible aspect is what I would consider substantial increases in minimum capital requirements:

• ₦10 billion for life insurers, up from ₦2 billion
• ₦15 billion for general insurers, up from ₦3 billion
• ₦25 billion for composite insurers, up from ₦5 billion
• ₦35 billion for reinsurers, up from ₦10 billion

While listed above, composite insurance (both life and non-life/general) is no longer recognized under the reform. This means that, upon full implementation of the law by 2026, all composite insurance companies are expected to separate their businesses into life and non-life/general companies, such as property and casualty (P&C). Note: “Composite insurance” is a common term in some African markets for insurers that combine life and non-life business. In North America, the underlying structure may exist, but the market more often uses terms such as “multi-line insurer” or “diversified insurance group” rather than “composite insurer.”

On paper, this is a significant recalibration—roughly a three- to four-fold increase across the board. It reflects macroeconomic reality and, at a minimum, improves the industry’s loss-absorbing capacity. But raising the floor is the easy part of regulation. It is blunt, visible and politically legible. I believe the more consequential shift lies elsewhere.

I believe NIIRA signals a transition—explicit or implicit—to a risk-based capital (RBC) regime, in which required capital is no longer uniform but contingent on the insurer’s exposure profile. This aligns Nigeria with global solvency frameworks grounded in IAIS Insurance Core Principles 16 (which requires insurers to actively understand, measure and manage all risks that could affect their solvency—not just react after problems occur) and 17 (which focuses on how much capital an insurer must hold relative to its risk), but the implications are far more behavioral than technical. Minimum capital, in this context, becomes almost incidental. The shift from fixed thresholds to risk sensitivity could determine how insurers behave.

WHEN CAPITAL STARTS PRICING RISK

Arguably, a risk-based capital framework changes something fundamental: It embeds a cost into risk that cannot be ignored. Before NIIRA reform, an insurer writing poorly priced fire and engineering business and one writing a well-diversified portfolio could, in principle, operate under the same capital requirement. The inequity was obvious, but it was tolerated.

NIIRA, in effect, removes this imbalance, supporting capital consequence with risk, in circumstances such as these three:

1. Volatile claims → higher capital requirements
2. Concentrated exposures → higher capital requirements
3. Weak reinsurance structures → higher capital requirements

This is not just a technical adjustment. It is a pricing mechanism. And like all pricing mechanisms, it changes behavior in response to the dynamics.

A LOOK AT ‘GROWTH AT ANY PRICE’

One of the more persistent features of emerging insurance markets is the pursuit of top-line growth, sometimes at the expense of underwriting discipline. Premium growth is evident, whereas profitability, particularly when deferred or masked, is less so.²

NIIRA makes it harder to sustain this strategy.

Under a risk-sensitive solvency framework, growth that is not supported by adequate pricing and diversification becomes capital-destructive. High-loss portfolios do not merely erode earnings—they consume capital, constraining future growth and potentially breaching solvency thresholds.

I believe this creates a new hierarchy of priorities, including these three:

1. Capital preservation
2. Risk-adjusted profitability
3. Sustainable growth

Notably, growth moves to third place in my evaluation.

For many insurers, this will require a potentially uncomfortable recalibration. Portfolios that were previously tolerated for their contribution to gross written premiums may need to justify themselves on capital efficiency grounds. Some insurers may face pressure to raise capital, adjust portfolios, merge, or exit, depending on their financial position and ability to adapt.

REINSURANCE: FROM SAFETY NET TO BALANCE SHEET TOOL

In a capital-insensitive regime, reinsurance may be treated as a cost center—a necessary expense to manage volatility and protect against large losses.

NIIRA reframes this relationship.

Once capital requirements become risk-sensitive, reinsurance becomes a mechanism for shaping the balance sheet itself. A well-structured quota share treaty can reduce net exposure and therefore capital requirements. An effective excess-of-loss program can cap tail risk, stabilizing solvency ratios. Poorly designed reinsurance can do the opposite—creating a false sense of protection while leaving capital strain intact.

To me, the implication is clear: reinsurance strategy may no longer be separated from capital strategy. Actuaries, in particular, may find themselves at the center of this integration—quantifying not just expected losses, but capital relief, volatility reduction and return on equity.

CONSOLIDATION MAY BE ONE POSSIBLE OUTCOME

The increase in minimum capital for life, P&C and reinsurance companies is often discussed in terms of its immediate impact on balance sheets. But its more important function is structural, as I believe it forces a choice.

Insurers that cannot access additional capital, improve profitability or optimize their risk profile may face a narrowing set of options, including merge, be acquired or exit the business.

I believe consolidation may be a foreseeable consequence of NIIRA and part of its logic.

Fragmented markets with many undercapitalized players tend to struggle with pricing discipline, claims credibility and large-risk underwriting capacity. Consolidation, while disruptive, may address these weaknesses. The outcome may be an industry with fewer players, but stronger ones.

INNOVATION THROUGH CONSTRAINT

I’ve seen regulation framed as a constraint on innovation. In practice, the opposite is frequently true. By strengthening capital bases—₦10 billion for life insurers, ₦15 billion for non-life/general, P&C insurers—NIIRA expands the risk-bearing capacity of the industry. This creates room for products that I believe were previously difficult to sustain, including these four:

1. Health insurance at scale
2. Agricultural and climate-linked products
3. Parametric solutions
4. Microinsurance with meaningful reach

At the same time, the discipline imposed by risk-based capital ensures that such innovation is not reckless. The result is a more interesting equilibrium: innovation enabled and constrained by capital.

THE QUIET REVOLUTION: GOVERNANCE AND ORSA THINKING

Perhaps the least visible but most consequential impact of NIIRA lies in governance. A risk-based solvency regime may struggle to operate without a corresponding shift in how firms understand and manage risk internally. This may push insurers toward Own Risk and Solvency Assessment (ORSA)-type thinking.

Those overseeing programs may need to engage with questions that were previously delegated or ignored, such as these three:

1. What is our true risk appetite?
2. How does our capital position respond to stress scenarios?
3. Which parts of our portfolio are capital-accretive—and which are not?

These are not compliance questions. They are strategic ones. And they may require a level of analytical maturity that is still developing in emerging markets, in my estimation.

A MORE DEMANDING ENVIRONMENT FOR ALL STAKEHOLDERS

NIIRA has implications not only for insurers but also for regulators, investors and policyholders. The framework:

• places greater emphasis on risk assessment, requiring deeper analytical capability and judgment from regulators.
• places greater weight on capital and solvency metrics, requiring more sophisticated interpretation by investors.
• elevates the importance of insurer solvency, potentially raising policyholder expectations regarding financial reliability.

This is, in effect, a system-wide upgrade.

A LOOK AT CHALLENGES

As with any significant regulatory reform, the transition is likely to require careful navigation in several areas, including the following:

• Data quality may affect the calibration and effectiveness of risk-based measures.
• The framework may increase demand for actuarial and risk management expertise in emerging markets.
• Some insurers may face challenges in raising additional capital where needed. particularly in local markets.
• Implementation may require investments in systems, governance and reporting capabilities.

Care will be needed to balance financial resilience with market development considerations. If capital requirements are applied too aggressively without regard to market conditions, they may constrain growth rather than enable it.

The success of NIIRA may therefore depend as much on how it is implemented as on what it prescribes.

NIGERIA IN THE GLOBAL SOLVENCY CONVERSATION

I believe NIIRA places Nigeria within a broader global trajectory toward risk-based solvency regimes, alongside frameworks such as Solvency II in Europe and Solvency Asset Management (SAM) in South Africa. But it also reflects an important evolution. Emerging markets are no longer simply importing regulatory models. They are adapting them—selectively, pragmatically, and with an awareness of local constraints.

I believe this matters. Because the future of insurance growth may be shaped not in fully mature markets, but in those still building their institutional and financial architecture. Nigeria is one of those markets.

IN CLOSING

It is tempting to view NIIRA as another recapitalization exercise—larger balance sheets, higher thresholds, stronger buffers. The capital requirement increase from ₦2 billion to ₦10 billion for life insurers, and the increase to ₦35 billion from ₦10 billion for reinsurers, is significant. But it is not the story. The story is the shift in logic.

Capital is no longer a number to be met. It is a resource to be managed, optimized and protected.

In a risk-sensitive regime, poor underwriting can put pressure on capital. Inefficient portfolios can erode value. Conversely, well-structured reinsurance can improve capital efficiency. Strong governance can enhance financial resilience.

The competitive advantage may not lie solely with the largest insurers. It may be with those who understand and embrace this shift—and act on it.

Finally, some insurers may discover that they were not undercapitalized because the minimum was too low, but because their risks required more capital than had been previously recognized. NIIRA does not just reveal that reality—it may make it increasingly difficult to ignore.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries or the respective authors’ employers.

Copyright © 2026 by the Society of Actuaries, Chicago, Illinois.