The Nigerian insurance sector is to receive an estimated N600 billion injection of capital before the intended recapitalization exercise of the insurance sector can be initiated.
This is a sequel to the anticipated going into law, by the end of 2025, of the Nigeria Insurance Reform Bill that will revolutionize the regulatory environment of the industry and drive momentum to a risk-based capital regime.Agusto & Co, in its 2025 Nigerian Insurance Industry Report, stated that insurance revenues in Nigeria increased to over N1 trillion levels as at the period ended December 31, 2024, to N1.1 trillion. This growth, it said, was driven by aggressive marketing, rising premiums to cover inflationary pressures and a 40.9 per cent devaluation of the naira that pumped premiums on foreign currency-denominated policies.
While awaiting the imminent enforcement into law in the next 31st day of December, 2025 of the Nigeria Insurance Reform Bill aimed at regulating the Industry’s regulatory framework, the report saw that a seismic impact will be placed on the capitalisation of the Industry as there is to be a switch from the present capital regime to a risk-based regime. “We foresee approximately N600 billion injection of capital by the insurers to bridge the increase in minimum capital requirement and enhance underwriting capacity.” Insurers are allowed to recapitalize in a phase, and we see the operations growing in FY 2025 in the bid to build the capital base.
In our opinion, the process of recapitalisation would realize the risk underwriting business in the short term as insurers would be focusing enough returns to the shareholders. Thus, we foresee introduction of innovation at the back of technology to propel insurance penetration and risk retention at the back of increased capital base, it stated.
The report also indicated that as of 2025, the insurance revenue will keep on expanding in the trend of increase in enforcement of obligatory insurance policies, expansion in the use of technology in product distribution and recapitalisation campaigns.
It outlined that, increased spending by the three arms of government on infrastructure development would also increase revenue of the industry from taking underlying risks, including that, new entrants such as NPF Insurance Company Limited, CHI Life Assurance Limited and Capital Express Indemnity Insurance Limited would propel the Industry’s insurance revenue.
“However, we do not anticipate a significant rise in the loss ratio since the extra revenue from insurance would be offset by increased claims. The need to reserve losses on unprofitable policies at the start of the transaction, required by the accounting standard IFRS 17, would reduce the loss ratio as well, since insurers would be concentrating on profitable policies instead of the former priority to generating more insurance revenue.”.
During FY 2025, a decline in the profitability of the Industry is anticipated primarily due to the lower foreign currency revaluation gains. In line with this, an estimated decline in the post-tax return on average equity (ROE) to 22.8 per cent is anticipated. We anticipate that sustainable profit (after stripping out the foreign currency revaluation gains, which are not predictable) will keep growing, helped by stepped-up enforcement of compulsory insurance policies, better product distribution and a broader base of capital to support the earnings of insurance, it said.
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