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INTRODUCTION
On 5th August 2025, President Bola Ahmed Tinubu assented to the Nigerian Insurance Industry Reform Act (the ‘‘Act’’), 2025, thereby repealing the Insurance Act 2003, along with other insurance-related legislations, consolidating them into a single, comprehensive legal framework for the sector commensurate with international best practices. One of the most transformative provisions of the Act is the mandatory recapitalisation of insurance entities operating in the country. This effort is designed to strengthen the financial capacity, solvency and operational resilience of insurers and reinsurers.
The reform reflects a decisive effort by the Federal Government to address longstanding challenges in the sector, including limited underwriting capacity and insufficient capital for risk retention. The Act also aims to enhance market stability, protect policyholders, and foster investor confidence. This article explores the rationale behind the recapitalisation, new capital requirements, strategic compliance options, and the broader implications of the reform on the Nigerian insurance landscape.
RATIONALE FOR THE RECAPITALISATION MANDATE
The recapitalisation provisions in the Act are not without precedent, from the Insurance Industry recapitalisation in 2007, to other financial sectors, such as the banking recapitalisation in 2005, and in 2024 under the current Central Bank of Nigeria (CBN) recapitalisation directive.
National Insurance Commission (NAICOM), the insurance sector’s regulator, is empowered to monitor compliance, provide implementation guidelines and enforce appropriate sanctions. NAICOM has consistently advocated for a more robust and increased capital base for insurers due to inflation, foreign exchange (FX) rate volatility and increasing underwriting risks. Over the last decade, some Nigerian insurers have faced difficulty in settling large claims due to inadequate domestic insurers’ limits, and thereby increased reliance on reinsurance from foreign markets (Lack of capacity forces Nigerian insurers to tap foreign peers – Business Insurance) especially in specialised sectors with high volume of claims, such as oil and gas, aviation and marine insurance and deepens further, the catastrophic exposure to FX instabilities in the sector (‘Nigeria’s oil, gas insurance retention capacity decline’ – The Nation Newspaper). This has invariably led to a high cost of business, trust deficit between insurance companies and policyholders, undermining insurance penetration, which currently remains below 1% of the Gross Domestic Product (GDP). (https://oxfordbusinessgroup.com/reports/nigeria/2024-report/insurance/room-to-develop-unlocking-the-potential-for-insurance-providers-to-expand-their-offerings-as-the-economy-continues-to-grow-overview/#:~:text=Despite%20decades%20of%20activity%2C%20Nigeria’s,GDP%20as%20of%20March%202022)
Also, the insurance sector has continued to experience low penetration levels and limited public awareness of insurance products and their benefits due to a lack of public orientation. Compliance with compulsory insurance requirements, such as coverage for construction sites, public and commercial buildings, has also been relatively weak, leading to gaps in risk protection and claims across the country. Thus, a well-capitalised insurance industry helps cushion the FX volatility in the market, contributes to the GDP, enhances market confidence and competitiveness and discourages reliance on foreign reinsurance.
The recapitalisation provision is therefore designed to achieve multiple objectives:
i. enhance the financial solvency and claims-paying capacity of insurers;
ii. enable Nigerian insurers to retain more risks domestically and reduce overreliance on foreign reinsurers;
iii. attract long-term investments and foreign participation;
iv. restore consumer confidence and increase insurance penetration in line with the Financial System Strategy (FSS 2020) and the National Financial Inclusion Strategy.
HIGHLIGHT OF THE NEW RECAPITALISATION REQUIREMENTS
The Act prescribes revised minimum paid-up share capital requirements for different categories of insurance operators. Under the new regime, the capital thresholds are as follows:
i. Life Insurance Companies: Increased from N2 Billion to 10 billion (Section 15(1)(b) of the Nigerian Insurance Industry Reform Act, 2025)
ii. Non-Life Insurance Companies: Increased from N3 Billion to N15 Billion (Section 15(1)(a) of the Nigerian Insurance Industry Reform Act, 2025
iii. Reinsurance Companies: Increased from N10 Billion to N35 Billion (Section 15(1)(c) of the Nigerian Insurance Industry Reform Act, 2025)
These revised thresholds aim to strengthen the financial capacity of insurers and ensure solvency in the sector. Also, the Act provides a transition period of twelve (12) months from the date of its commencement, within which all existing insurers must comply with the new capital requirements (Section 15(6) of the Nigerian Insurance Industry Reform Act, 2025). Companies that fail to comply with this provision may face regulatory sanctions, such as operational downgrade or revocation of license by NAICOM (Section 15(7)(a) of the Nigerian Insurance Industry Reform Act, 2025). To support this process, NAICOM is also expected to implement a Risk-Based Capital (RBC) framework, correlating capital adequacy with insurers’ risk profiles. This represents a shift from the previous uniform approach and aligns Nigeria’s insurance regulation with international standards such as Insurance Core Principles (ICPs) of the International Association of Insurance Supervisors (IAIS), which provide globally recognised guidelines for the financial soundness, governance, and supervision of insurers.
STRATEGIC OPTIONS FOR RECAPITALISATION COMPLIANCE
Although the Act does not prescribe any specific funding method for recapitalisation, NAICOM has established a Recapitalisation Implementation Committee to oversee the execution of the new capital requirements, including issuing guidelines, monitoring sectoral compliance, and recommending regulatory incentives. NAICOM retains the discretion to grant waivers, exemptions or extensions where appropriate, although the general compliance deadline remains twelve (12) months. Consequently, insurance operators need to devise practical strategies to meet the recapitalisation thresholds. Among the most viable funding options are:
a. Rights issues/equity injections: Existing shareholders may increase their equity by injecting fresh capital. Companies can also offer preferential rights to existing investors to raise additional funds while maintaining the ownership structure. This approach preserves independence and control but requires shareholders’ willingness to contribute.
b. Debt financing: Insurers may consider short-term instruments such as bonds, notes or commercial papers, which provide a fast route to raise capital within the twelve (12) month compliance window. This approach allows funds to be raised without diluting existing equity but requires careful management of repayment obligations and liquidity.
c. Mergers and acquisitions (M&A): Insurers may consider merging with or acquiring other companies to pool capital, achieve compliance, and create economies of scale. M&A transactions in the insurance sector typically require NAICOM approval to ensure regulatory compliance, as well as the Federal Competition and Consumer Protection Commission (FCCPC) approval to address competition and antitrust considerations, particularly if the merger could significantly affect market concentration or reduce consumer choice. Additionally, thorough due diligence must be conducted on underwriting portfolios, claims liabilities, and governance structures to ensure the merged entity is financially and operationally viable.
d. Strategic partnerships / foreign equity participation: Alliances with foreign insurers or investors with stronger balance sheets and technical capacity can provide capital, access to expertise, and exposure to international best practices. This may include joint ventures, minority equity investments, or reinsurance partnerships. Such arrangements would also require regulatory notifications or approvals from both NAICOM and FCCPC, depending on the transaction structure.
e. Divestiture of non-core assets: Insurers may liquidate subsidiaries, underperforming business lines, or non-essential assets to free up capital. This strategy can improve balance sheet efficiency, enhance liquidity, and strengthen focus on core insurance operations.
IMPLICATIONS FOR THE INSURANCE SECTOR
The recapitalisation mandate under the Act carries several significant implications for the Nigerian insurance industry:
a. Market Consolidation: The increased capital thresholds are expected to trigger mergers and acquisitions. Smaller insurers with insufficient capital will need to consolidate or be acquired to meet the new requirements, leading to a likely reduction in the number of operating firms and the emergence of stronger, better-capitalised entities.
b. Attraction of Foreign Investment: Recapitalisation may attract foreign direct investment (FDI) into the sector, particularly from international insurers seeking to expand their presence in emerging markets.
c. Enhanced Underwriting Capacity: Insurers with adequate capital will be better positioned to underwrite large-ticket risks. This aligns with the government’s objective of retaining premiums locally and reducing reliance on compulsory offshore reinsurance.
d. Improved Governance and Risk Management: Recapitalised insurers are expected to adopt enhanced risk governance frameworks, thereby promoting market discipline and strengthening corporate governance practices.
e. Strengthening financial sector resilience: The recapitalisation improves the insurance industry’s stability, making it a stronger pillar within Nigeria’s broader financial system. It also positions Nigeria as a regional hub for insurance and reinsurance in West Africa, contributing to the country’s goal of a $1 trillion economy.
CHALLENGES AND CONCERNS
While the recapitalisation initiative is generally commendable, the implementation phase may present the following challenges:
a. Limited Timeframe for Compliance: The twelve (12) month window for recapitalisation may pose practical difficulties for some operators, given the current macroeconomic conditions and the time required to mobilise substantial capital.
b. Cost of Capital: Accessing new capital, particularly through the debt markets, may be constrained by prevailing high interest rates and investor caution, which could delay capital raising efforts.
c. Operational Adjustments and Workforce Reorganisation: Consolidations, Mergers or business restructuring may be necessary to meet the new capital thresholds. However, this could result in internal adjustments and possible reduction of roles in order to streamline operations.
d. Internal Structural Readiness: Some insurers may need to improve internal structures, including financial controls, disclosures, and corporate governance measures, to enhance their attractiveness to potential investors or merger partners.
CONCLUSION
The recapitalisation requirement under the Act represents a significant turning point, and its success will heavily depend on efficient regulatory oversight by NAICOM, the ability of insurers to explore strategic capital raising options, and the creation of a conducive investment environment. Ultimately, while the transition may be challenging, the reform offers an opportunity to reposition Nigeria’s insurance sector for sustainable growth. Local Insurers can significantly expand their risk retention capacity and compete more effectively in both domestic and global markets.
“Noble Obasi is the Team lead of the Private Equity, Capital Markets and Mergers & Acquisitions Practice Group at Stren & Blan Partners; Ibitola Akanbi is an Associate in the Private Equity, Capital Markets and Mergers & Acquisitions Practice Groups; Ebube Okorji is an Associate in the Private Equity, Capital Markets and Mergers & Acquisitions Practice Groups; and Onyinyechi Isikaku is an Associate in the firm’s Private Equity, Capital Markets and Mergers & Acquisitions Practice Group.
Stren & Blan Partners is a full-service commercial Law Firm that provides legal services to diverse local and multinational corporations. We have developed a clear vision for anticipating our clients’ business needs and surpassing their expectations, and we do this with an uncompromising commitment to Client service and legal excellence.”
