1. NIGERIA’S INSURANCE INDUSTRY…A DIAMOND IN THE ROUGH!!
The Insurance sector is a major composite of the financial system anywhere in the world Nigeria
inclusive. However in Nigeria the Insurance sector is laced with lots of potentials and opportunities
amidst surmountable challenges. Hence the industry over the years has sauntered from being an ill-
perceived sector to one beginning to acquire a dominant role within the purview of the Federal
Government of Nigeria’s Vision 20:20:20.
The Nigeria Government envisions an Insurance industry that will rank amongst the twenty largest
markets in the world by the year 2020 (though Nigeria is currently ranked 60 in the world). The
Government has however undertaken some certain steps and measures towards actualizing this
objective, particularly the strengthening of the Nigerian Insurance Commission (NAICOM) which
derives its regulatory powers from the National Insurance Commission Act, 1997 and the Insurance
Act of 2003. Section 86 of the Insurance Act empowers NAICOM amongst other numerous powers
to “be responsible for the administration and enforcement of the provisions of the Act”, as well as
empowering it to register insurance companies and to increase the amount of minimum share
capital requirement as circumstances may demand.
Another important legislation for the regulation of the insurance industry in Nigeria is the Nigerian
Council of Registered Insurance Brokers Act of 2003, which established the Nigerian Council of
Registered Insurance Brokers as the umbrella association of all registered insurance brokers, which
statutorily are required by the Council before it can be licensed to operate by the National
Insurance Commission. Being a financial sector operator, the industry is also regulated by other
legislations governing financial transactions especially, the Anti-Money Laundering Laws.
Evolution of Recapitalization in the Nigerian Insurance Sector
The Nigerian Insurance Industry has undergone 2 (two) rounds of recapitalization over the past 10
years, and this is an indication that the insurance industry is closely linked to the general economic
growth, because over the same number of years the Nigeria economy has equally been witnessing
robust GDP growth as well. Hence it became imperative for the sector to increase its capacity to be
well positioned to tap into the Nigerian economic growth and development. However despite the
recapitalization exercises of the sector, there are clear indications that the current recapitalization
levels are inadequate, as industry statistics reveal that insurance companies lose the opportunity of
earning about N70 billion in premiums annually from the oil and gas sector as a result of premium
flight and this is expected to double with the emergence of a functional power sector on the back of
the current power reforms if nothing is done to position the industry. Most multinational
companies have resorted to insuring their assets overseas; as the capital base of local insurance
companies are inadequate to carry the risks of insuring their assets.
In 2003 the Insurance industry embarked on its first recapitalization programme, which was in line with
the passing of the 2003 Insurance Act. As Insurance companies were required to raise their capital bases

2. from N20million to N150million for Life businesses, N70million to N300million for Non-Life
businesses, and N150million to N350million for Reinsurance businesses. However, prior to this
recapitalization exercise in December 2002 there were 117 insurance companies, of which 14 were
liquidated after the recapitalization exercise as they were unable to scale through the
recapitalization hurdle.
In September 2005 a new capitalization requirement was again announced increasing the capital
base from N150million to N2billion for Life Insurance businesses; N300million to N3billion for
Non-Life businesses and N350million to N10billion for the Re-Insurance companies. After the
recapitalization exercise the industry witness quite a number of consolidations with the number of
Insurance companies dropping by 52.4% from 103 to 49 companies.
Pre – Consolidation Nigerian Insurance Industry
Prior to the regulatory induced recapitalization the Nigerian insurance companies was
characterized by many challenges, these challenges are mostly responsible for the sector inability
to attract sufficient businesses both locally and internationally. The distressed state of the industry
also affected its ability to retain a significant proportion of risk emanating from assets domiciled in
Nigeria, while premium flight was another key challenge for the sector, as the underwriting
capability of the existing companies was low compared to the available risks.
The industry before the recapitalization exercise was made up of 103 Insurance companies, 4
Reinsurers, 527 Brokers and 28 Loss Adjusting companies who all were not well capitalized and
positioned to cover big ticket transactions, hence the need to raise the bar.
Post – Consolidation of the Insurance Industry
Post recapitalization, the Nigerian Insurance sector
has continued to witness consolidation activities that have produced some major players capable of
meeting claims obligations which hitherto they were not able to meet. Also the reforms have
created a business environment to contain various brand activities, increased investment as well as
growing public awareness of the benefits of insurance to the society at large. Current interest by
foreign investors in Nigerian insurance companies is a testament to the ongoing reforms in the
industry. The continuous implementation of the current reforms in the insurance sector is expected
to significantly reduce the number of operators, increase competition and standard among existing
players in the industry.
Current Nigeria’s Insurance Industry Facts (based on the 2011 audited financial results)
 The current number of member companies as at 31st December 2011 is 60
- Specialist Life insurance Companies 16
- Composite Insurance Companies 7
- Specialist General insurance Companies 31
- Reinsurance Companies 2

3.  The current minimum share capital of insurance companies are as follows;
- Life Insurance Business: N2billion
- General Insurance Business: N3billion
- Composite Insurance Business: N5billion
- Reinsurance Business: N10billon
Fig 1: (%) Growth Rate of Premium Income of Insurance
Companies in Nigeria
Fig 3: Nigeria’s Insurance Industry Balance Sheet Size (N’bn)
Source: NIA’s Insurance Digest 2011
Fig 2: Nigerian Insurance Companies Total Gross Premium
Income (GPI)
Fig 4: Nigeria's Insurance Industry Financial Performance (N’bn)
The Nigerian government through its ongoing reforms in the sectors is working towards
positioning the insurance sector as a key part of the Nigerian financial system, which will account
for a significant portion of the total economy. This is because insurance companies are believe to be
able to pull together a large pool of funds by collecting relatively small premiums from many
individual in the economy like no other institution, of which such funds can be invested for short
and long term periods. Hence the sector is therefore important for sustained economic growth,
which will deepen and broadens the domestic financial services universe, as well as generates
higher savings rates and greater economic development.
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
Life Non - Life
0
100
200
300
400
500
600
2006 2007 2008 2009 2010
Total Assets Shareholder's Fund
0
50
100
150
200
Gross Premium Income (N' bn)
0
50
100
150
200
2006 2007 2008 2009 2010
GPI PBT PAT

4. Investment Opportunities in the Insurance Sector
Nigerian Insurance companies have not completely shaken-off the challenges facing the industry in
the past years, particularly losses suffered from the 2008 financial crisis as their investment value
in the equities market which constitute a large portion of their total investment was significantly
eroded. However past and current reforms and liberalization efforts by the Nigerian government
has given the sector a glimmer of hope, as the sector has began to witness some positive changes.
Hence paving way for the emergence of big players and foreign portfolio investors’ (FPIs) interest
in the sector. However to appreciate the opportunities and challenges in the Insurance sector, lets
carry-out a “SWOT analysis” of the industry.
Strength
The Nigeria Insurance industry is unarguably one sector with a lot of potentials despite
surmountable challenges, with a 10year (2001 – 2010) Gross Premium Income (GPI) growth rate of
457% as indicated in (Fig 2) above. Further statistics emanating from the regulatory NAICOM
equally reveal that premium income has been growing at about 18% per year and it’s expected to
quadruple over the next 3 – 5 years as the Nigerian government implements its transformational
agenda programmes.
As at 2010 the Nigerian Insurance sector is generating a total Gross Premium Income (GPI) of
N250billion and having a Total Assets of N564billion, although the ratio of Premium Income to the
country’s GDP is just 1%, which is a far cry from its potentials and other emerging economies.
However the sector has began to witness aggressive investments by key players, in the area of
human capital development, technology, as well as shoring up their balance sheets for capacity and
liquidity for big ticket transactions. This they believe will position them to take advantage of
emerging opportunities, haven identified that large ticket transaction in the oil & gas, infrastructure
and power sectors will deliver higher profitability.
Weaknesses
The Nigerian Insurance industry has been characterized by certain weaknesses over the years
which when addressed will position the sector to realize most of its potentials as well as attract
sufficient businesses both locally and internationally. Below are some of the weaknesses facing the
sector:
 Existence of too many fringe operators
 Prominence of unethical practices
 Dearth of professional human capital and technology
 Poor asset quality
 Non-enforcement of compulsory insurance
 Significant corporate governance issues
 Insurance premium flight
 Low GDP per capita figures
 Lack of innovation in product development; and

5.  High level of consumers’ ignorance n the advantages of insurance products.
Opportunities
The Insurance industry in Nigeria has begun to witness a lot of emerging opportunities on the back
of current Government legislation which has supported the prospects of growth in the industry.
Hence this legislation has triggered strategic mergers and acquisitions, interests from foreign
investors’ as well as increases in competition and standard amongst players in the industry.
Most importantly the less than one percent market penetration in the insurance sector of Africa’s
most populous nation, presents huge market potential and growth opportunity which local and
foreign investors are finding more attractive to ignore. This can however be confirmed by the
recent entry into the sector by big global insurers from South Africa, Europe and the UK.
Investment opportunities in the insurance sector are hinged on:-
 Nigeria’s projected population to reach 185million mark in 2015 and 221million by 2025,
these constitute a massive market base for insurance players
 Emerging opportunities in the ongoing power sector privatization exercise
 NAICOM ensuring the removal of any inhibitions to local Insurers participating in the Oil &
Gas business, as well as facilitate local risk retention of sector’s insurance policies.
 As well as the implementation of compulsory insurance covers in Nigeria, namely:-
- The Motor Third Party Insurance. This is provided for by Section 68 of the Insurance Act, 2003.
- The Statutory Group Life Insurance, as stipulated by 9(3) of the Pension Reform Act, 2004.
- Employees Compensation as Stipulated by Section 33 of the Employee’s Compensation Act, 2010.
- The Occupier’s Liability Insurance, made mandatory by Section 65 of the Insurance Act, 2003.
- The Builder’s Liability Insurance, as provided for by Section 64 of the Insurance Act, 2003.
- Health Care Professional Indemnity Insurance mandatorily provided for by Section 45 of the National
Health Insurance Act, 1999.
Threats
The Nigerian Insurance sector despite its huge potentials and opportunities is still faced with
threats, and if not addressed can defeat all the achievements of the ongoing reforms in the industry.
Hence government, regulators and operators all have to work closely to make sure achievements
realized so far are consolidated upon, for the Nigeria Insurance sector to become a key part of the
financial system of the Nigerian economy.
Downside risks in the insurance sector are:
 Non-implementation of government reform policies
 Non-prompt settlement of insurance claims
 Continued existence of unethical practices
 Inadequate capital base to take-on emerging opportunities in strategic economic sectors
 Lack of innovative and non-differentiation of insurance products
 Lack of corporate governance
 Continuous premium flight and
 Prevalence of unskilled labour.
Conclusion and a Summary of Foreign Stakeholders in the Nigeria Insurance Industry

6. We believe that the insurance sector is critical to the ability of emerging and transitional economies
like Nigeria to grow and develop, as well as provide a reliable cover for risk to the citizens and
businesses alike. Generally it is believed that insurance provides stability by allowing large and
small businesses operate with lesser risk of uncertainties or failure, it’s equally seen as a
compliment to government security programme and its transformational agenda. Therefore it’s no
gaining saying that there are huge opportunities in this sector if only its potentials are maximally
harnessed.
Hence the continuous increase of foreign investors in the sector justified, by the entrance of the
likes of Old Mutual. An Anglo-South African financial conglomerate which acquired Oceanic
insurance Limited, which was adjudged insolvent by the market regulator. Also the likes of Assur
Africa Holding, a consortium of three European Development Finance Institutions (DFIs) and two
Private Equity (PE) Firms which acquired 67.68 percent shareholding in GTAssure, now Mansard
Insurance Plc.
UBA Metropolitan, a subsidiary of United Bank for Africa has a strong South African presence from
Metropolitan life, while FBN Insurance limited, a subsidiary of First Bank of Nigeria Holding
Company also has a strong presence of South African investors, Sanlam Group.
While companies within the local market in anticipation of more competitive operating market
space, are also feverishly consolidating their positions through strategic mergers and acquisitions
like the recent case of Custodian & Allied Insurance Plc one of the major players in the industry,
merging with Crusader Nigeria Plc. The post merger company is expected to enhance the new
entity’s revenue opportunities, financial capacity, operating efficiencies and expand product
portfolio. Similarly the recent acquisition of a majority stake of 52% in Crystalife Assurance Plc by
Asset & Resource Management Company (ARM) and LeapFrog an emerging market firm, only
bolster the immense opportunities in the Nigeria’s insurance industry.
Going forward therefore we expect to see more entry of foreign investors into the Nigerian
insurance space and several mergers and acquisitions amongst local players. As they all position to
take-on emerging opportunities in Nigeria and Sub-Sahara Africa (SSA), as they are both seen as the
emerging destination for growth and foreign direct investments.