Capital or Collapse? The Nigerian Insurance Industry Reform Act 2025 and the Race to Meet New Thresholds

Abstract

The Nigerian Insurance Industry Reform Act 2025 (NIIRA 2025) represents the most aggressive regulatory intervention in the insurance sector since the Insurance Act 2003. Responding to chronic undercapitalisation, low penetration (0.3% of GDP), and numerous insolvencies, the National Assembly has mandated a multi‑tier minimum capital framework that raises requirements by between 200% and 500%, depending on class of business. This article analyses the new capital thresholds, the compliance deadline of 31 December 2026, and the legal mechanisms for enforcement, including the National Insurance Commission’s (NAICOM) expanded powers to revoke licenses, appoint interim managers, and block reinsurance outflows. It examines consolidation strategies (mergers, acquisitions, and hive‑downs), the role of the newly created Nigeria Insurance Resolution Fund (NIRF), and the implications for policyholders, foreign investors, and the broader financial system. The article concludes that while the reform is necessary, the short implementation timeline and limited availability of verifiable capital may trigger a wave of distressed consolidations and potential market exits.

1. Introduction

On 20 November 2025, President Bola Tinubu assented to the Nigerian Insurance Industry Reform Act 2025 (NIIRA 2025) , repealing the Insurance Act 2003 and its amendments. The Act’s preamble states its objectives: to enhance policyholder protection, deepen insurance penetration, and align Nigerian insurers with global solvency standards (particularly the International Association of Insurance Supervisors – IAIS – ICPs). However, the headline provision, a dramatic upward revision of minimum paid‑up share capital, has provoked heated debate among industry players, legal practitioners, and economists.

The previous capital requirements, set by the 2007 recapitalisation exercise, were:

• Life insurance: N2 billion (approx. $1.3 million at current exchange rates)
• General insurance: N3 billion
• Composite (life + general): N5 billion
• Reinsurance: N10 billion

Under NIIRA 2025, the new thresholds are:

These amounts must be fully paid‑up and maintained in cash or specified government securities (no real estate or intangible assets). The compliance deadline is 31 December 2026, just over 18 months from the date of this article (May 2026).

This article dissects the legal framework of NIIRA 2025. Part II traces the legislative journey and the problems necessitating reform. Part III sets out the capital provisions in detail, including the treatment of statutory deposits. Part IV analyses enforcement mechanisms and the consequences of non‑compliance. Part V examines consolidation options: mergers, acquisitions, and transfer of portfolios. Part VI discusses the Nigeria Insurance Resolution Fund (NIRF) and its role in orderly market exit. Part VII highlights legal challenges already filed. Part VIII offers practical guidance for insurers and investors.

2. The Case for Reform: Under‑capitalisation and Market Fragility

Before NIIRA 2025, Nigeria had 58 licensed insurers (including 12 reinsurers). According to NAICOM’s 2024 annual report:

• 23 insurers (40%) had capital below the then‑required minimum (due to inflation and naira devaluation eroding real value).
• The industry’s total gross premium income (GPI) was N1.2 trillion (approx. $780 million), yet unpaid claims totalled N380 billion, a claims backlog of 32% of GPI.
• Four insurers had been under statutory management since 2022, with policyholders unable to access over N45 billion in outstanding claims.
• Nigeria’s insurance penetration (0.3% of GDP) compared poorly with South Africa (12.5%), Kenya (2.3%), and even Ghana (1.1%).

The 2007 capital thresholds, set when the naira was N120 to USD 1, had lost over 80% of their real value by 2025 (exchange rate ~N1,500/USD). NAICOM Commissioner Mr. Olasupo Salami testified before the Senate Committee on Banking, Insurance, and Other Financial Institutions in June 2025: “We have insurers whose paid‑up capital, in real terms, is less than the cost of a luxury car. They cannot underwrite a single major risk without recourse to questionable reinsurance arrangements.”

The reform bill was passed with cross‑party support and signed into law, but not without last‑minute amendments extending the original deadline (which was 31 December 2025) to 31 December 2026, and introducing a claw‑back provision for early compliance.

3. The New Capital Framework, Section 8 – 15 of NIIRA 2025

3.1. Minimum Paid‑Up Share Capital (Section 8)

Section 8(1) prescribes the thresholds listed above. Section 8(2) defines “paid‑up share capital” strictly:

“Paid‑up share capital shall consist only of cash consideration received by the insurer from shareholders or of government securities (as defined in the Investments and Securities Act) held in a blocked account with the Central Bank of Nigeria. No other asset, including real property, unquoted equities, or intangible assets, shall be counted towards minimum capital.”

This eliminates the previous practice where insurers inflated capital with overvalued property or related‑party assets. Section 8(3) further requires that the capital be maintained at all times, a fall below the threshold for more than 60 days triggers an automatic suspension of new business underwriting.

3.2. Statutory Deposit (Section 12)

In addition to minimum capital, each insurer must deposit a statutory deposit with the CBN: 10% of the minimum capital for its class, or N1 billion (whichever is higher). For a general insurer (minimum N18 billion), the deposit is N1.8 billion (since 10% = N1.8bn). The deposit is held in an interest‑bearing account and can only be accessed with NAICOM’s written consent and only for the purpose of paying claims if the insurer becomes insolvent.

• Transitional provision: Existing insurers have until 30 June 2026 to lodge the statutory deposit. Failure attracts a penalty of N500,000 per day.

3.3. Capital Adequacy Ratio (CAR), Section 9

Beyond the fixed minimum, NIIRA 2025 introduces a risk‑based capital adequacy framework similar to Solvency II. Section 9 mandates NAICOM to prescribe, by regulation, a Capital Adequacy Ratio (CAR) of at least 150% of the Solvency Capital Requirement (SCR). The regulations (draft seen by this author) propose:

• SCR = credit risk + market risk + underwriting risk + operational risk, calibrated using the insurer’s own internal model or a standard formula.
• Insurers with CAR below 150% but above 100% must submit a corrective action plan.
• Insurers with CAR below 100% are considered “significantly undercapitalised” and subject to immediate intervention (see Section 20).

This risk‑based approach is new to Nigeria and will require significant investment in actuarial and risk management talent.

3.4. Group Capital Requirements (Section 11)

For insurers that are part of a financial holding company (e.g., a bank‑owned insurance subsidiary), the Act imposes group capital adequacy, the holding company must ensure that the insurer’s capital is not eroded by losses in other group entities. This is a direct response to the 2023 collapse of a major bank‑affiliated insurer where upstream dividends stripped capital below regulatory minimum.

4. Compliance Deadline and Forbearance Period

Section 60(1) sets the final compliance date as 31 December 2026. However, the Act offers staggered compliance options for insurers that demonstrate good faith efforts:

• Early bird discount: Any insurer that achieves the new capital by 30 June 2026 receives a 20% reduction in its annual supervisory levy for 2026 and 2027 (Section 60(3)).
• Interim milestone: By 31 December 2025 (already passed), insurers were required to have attained at least 50% of the new capital. For those that missed this milestone, NAICOM is empowered to restrict dividend payments and limit new product approvals (Section 60(4)).
• Forbearance for viable plans: An insurer that provides a credible recapitalisation plan, backed by binding commitments from shareholders or new investors, may request a 6‑month extension to 30 June 2027. NAICOM has discretion to grant such extension only if the insurer also posts a performance bond of N500 million.

As of May 2026, NAICOM reports that only 12 out of 58 insurers have fully complied with the new minimums. 23 insurers have met the 50% interim milestone, and the remaining 23 have not. These 23 are now under enhanced surveillance.

5. Enforcement Mechanisms for Non‑Compliance (Sections 20–35)

NIIRA 2025 arms NAICOM with unprecedented enforcement powers. The graduated sanctions are as follows:

In addition, individual liability attaches to directors and CEO. Section 35 provides that any director who knowingly permits the insurer to carry on business after capital falls below the minimum commits an offence, punishable by:

• Fine of N50 million (approx. $32,500) and/or imprisonment for up to 3 years; and
• Disqualification from being a director of any financial institution for 10 years.

This criminal provision has already led to the resignation of several non‑executive directors from struggling insurers.

6. Consolidation Strategies: Mergers, Acquisitions, and Portfolio Transfer

Given that 23 insurers are likely to miss the December 2026 deadline, the Act encourages consolidation as a preferred alternative to liquidation. Part IV (Sections 40–50) provides a streamlined legal framework for insurance business transfers.

6.1. Mergers (Section 41)

Two or more insurers may merge to combine capital. The Act waives the normally applicable merger filing fees payable to the SEC and the Federal Competition and Consumer Protection Commission (FCCPC) for insurance mergers completed before 31 December 2026. The merger must be approved by NAICOM and by a special resolution of shareholders (75% majority). Dissenting shareholders have appraisal rights, they can demand cash payment equal to the fair value of their shares.

6.2. Acquisition of a Distressed Insurer (Section 44)

A solvent insurer may acquire a distressed insurer (capital below 50% of minimum) through a simplified process:

• No requirement for a shareholder vote at the distressed insurer if NAICOM certifies it as “financially compromised”, the NAICOM appointee can sign the sale agreement.
• The acquirer can deduct the distressed insurer’s liabilities from its taxable income over 5 years (a tax incentive not available in ordinary acquisitions).
• However, the acquirer assumes all policyholder liabilities, no cherry‑picking of assets.

6.3. Portfolio Transfer (Section 47)

An insurer that cannot meet the capital deadline but wishes to exit voluntarily may transfer its entire insurance portfolio (all policies, with associated assets) to another insurer. This requires:

• Actuarial certificate that the transferee has adequate capital to absorb the portfolio.
• Court approval (High Court of the state where the transferor has its registered office).
• 90‑day notice to all policyholders, who have a right to object.

Four insurers have already initiated portfolio transfers as of April 2026, preferring an orderly exit to forced liquidation.

7. The Nigeria Insurance Resolution Fund (NIRF), Sections 51–58

The Act creates a Nigeria Insurance Resolution Fund (NIRF) , managed by NAICOM, funded by:

• 0.5% levy on gross premiums of all insurers (to be collected quarterly);
• Initial capital injection of N100 billion from the Federal Government (drawn from the 2025 supplementary budget);
• Proceeds from liquidation of failed insurers.

The NIRF serves as a policyholder protection scheme (similar to the NDIC for banks). If an insurer fails, the NIRF will pay claims up to a limit of N5 million per policyholder for life policies (or 50% of the sum assured, whichever is lower) and N2 million for general insurance claims. This is a significant improvement over the previous regime where policyholders had no guaranteed compensation.

However, the NIRF is not a bailout fund for shareholders. Section 55 explicitly states: “No payment shall be made from the NIRF to shareholders of a failed insurer. All shareholder equity shall be written off before any policyholder payment is made.”

8. Legal Challenges to NIIRA 2025

Three separate lawsuits have been filed at the Federal High Court, Abuja, challenging aspects of the Act:

8.1. Nigerian Insurers Association (NIA) v. NAICOM, Suit No. FHC/ABJ/CS/2026/15

The NIA (representing 45 insurers) argues that the 400–500% capital increase is disproportionate and retrospective, violating Section 44 of the Constitution (right to peaceful enjoyment of property) because existing shareholders’ investments are effectively diluted or wiped out without compensation. The court granted an interlocutory injunction on 10 February 2026 staying enforcement against the NIA’s members pending final determination. However, NAICOM has appealed, arguing that the regulation of capital adequacy is a legitimate exercise of police power. The Court of Appeal is scheduled to hear the appeal in July 2026.

8.2. Minority Shareholders’ Association v. AGF & NAICOM, Suit No. FHC/ABJ/CS/2026/47

This suit challenges Section 44 (acquisition of distressed insurers without shareholder vote), claiming it violates the Companies and Allied Matters Act (CAMA) 2020, which requires a members’ scheme of arrangement. The plaintiffs argue that the Act cannot override CAMA unless it expressly says so. The Act does not contain a specific override clause, creating a genuine legal conflict. Outcome uncertain.

8.3. Reinsurance Association of Nigeria v. NAICOM, Suit No. FHC/L/CS/2026/88

Reinsurers argue that the 40 billion naira minimum (up from 10 billion) is redundant because reinsurers already maintain significant offshore capital. They seek a declaration that the increase violates the cross‑border services provisions of the African Continental Free Trade Area (AfCFTA) by creating a barrier to entry for foreign reinsurers. This is a novel argument with potential regional implications.

Pending these cases, NAICOM has continued to enforce the Act, citing the presumption of constitutionality. The litigation uncertainty is, however, making it difficult for some insurers to raise fresh capital, as potential investors fear a judicial reversal.

9. Practical Implications and Strategic Recommendations

9.1. For Insurers

• Immediate capital planning: Do not rely on litigation to suspend the deadline. The Court of Appeal is unlikely to strike down the entire Act; at most, it may adjust the timeline or the penalty provisions.
• Consider consolidation: Smaller insurers (especially those with capital below N5 billion) should actively seek merger partners. The tax waiver for mergers is a genuine incentive.
• Review the statutory deposit: Ensure the deposit is lodged with the CBN by 30 June 2026, the daily penalty of N500,000 (approx. $325/day) adds up quickly.
• Invest in risk management: The new risk‑based CAR requires actuarial and compliance infrastructure. Budget for this now.

9.2. For Policyholders

• Check your insurer’s capital status on NAICOM’s public register (updated monthly). If your insurer is among the 23 non‑compliant entities, consider switching to a compliant insurer before the December 2026 deadline.
• The NIRF provides some safety net, but the cap of N5 million for life policies may be inadequate for high‑net‑worth individuals. Consider splitting coverage across multiple compliant insurers.

9.3. For Foreign Investors

• The capital increase effectively raises the entry barrier. For a foreign firm wishing to acquire a Nigerian insurer, the cost of entry has quadrupled.
• However, the consolidation wave presents opportunities to buy distressed insurers at low multiples, inject fresh capital, and gain a substantial market share. The NIRF’s existence reduces the risk of total loss.

9.4. For Legal Practitioners

• Merger and acquisition advisory work for insurance clients will be intense through late 2026.
• Litigation opportunities exist on the constitutional and CAMA override issues. The minority shareholder case is particularly interesting for corporate law specialists.
• Advising directors on personal liability: ensure board minutes document all steps taken to meet capital requirements; otherwise, directors risk imprisonment under Section 35.

10. Conclusion

The Insurance Industry Reform Act 2025 is a bold but risky intervention. The dramatic capital increase is justified by the sector’s chronic weakness, but the 18‑month compliance window (from assent to deadline) may prove too short. Without realistic forbearance, NAICOM could be forced to revoke the licenses of over 20 insurers, triggering a policyholder crisis that the NIRF may not be adequately funded to handle. The pending litigation adds further uncertainty.

Nevertheless, for insurers that successfully recapitalise or consolidate, the post‑2027 market will be more concentrated, better capitalised, and more attractive to foreign reinsurers. The survivors will find a less crowded, more professional industry.

Final recommendation: All stakeholders, regulators, insurers, policyholders, and counsel, should treat 31 December 2026 as a firm, likely non‑negotiable deadline. The penalty moratorium that existed for tax (in Topic #3) does not exist here. The time to act is now.

References

1. Nigerian Insurance Industry Reform Act 2025, No. 24 of 2025.
2. NAICOM (2025). Annual Report and Statement of Accounts 2024.
3. NAICOM Circular 2026/001: Guidelines on Risk‑Based Capital Adequacy for Insurers (15 January 2026).
4. Central Bank of Nigeria (2026). Framework for Insurance Statutory Deposits (January 2026).
5. International Association of Insurance Supervisors (2024). Insurance Core Principles and Methodology.
6. Ogunleye, A. (2026). “The Nigerian Insurance Recapitalisation: Legal and Economic Implications.” Journal of African Financial Regulation, 7(1), 34–67.
7. Federal High Court Suits: FHC/ABJ/CS/2026/15; FHC/ABJ/CS/2026/47; FHC/L/CS/2026/88 (case files on file with author).