Nume Ekeghe

The 2025 Nigerian Insurance Industry Report released by Agusto & Co. has predicted a transformative phase for Nigeria’s insurance sector, with insurers expected to inject approximately N600 billion in fresh capital to meet evolving regulatory demands.

According to the report, the projected capital raise is driven by the anticipated passage of the Nigeria Insurance Reform Bill before the end of 2025, a move that is set to fast-track the industry’s transition to a risk-based capital framework and enhance underwriting capacity.

The report stated that the bill, which seeks to overhaul the industry’s regulatory framework, will fast-track the transition to a risk-based capital regime, significantly impacting the capitalisation of insurance firms.

The planned increase in the minimum capital requirements across various business segments, the report noted, will push insurers to shore up their financial base, enhancing underwriting capacity and risk retention.

It stated: “The Nigeria Insurance Reform Bill (the Bill), which seeks to overhaul the Industry’s regulatory framework, is expected to be passed into law before 31 December 2025. We believe the Bill would compel the National Insurance Commission to fast-track the transition to a risk-based capital regime (initiated over a decade ago). 

“This legislation would significantly impact the Industry’s capitalisation based on the planned increase in the minimum capital requirement for the various business segments in the Bill. We anticipate circa N600 billion capital injection by insurers to comply with the uptick in the minimum capital requirement and increase the underwriting capacity.

“While Insurers would be allowed to recapitalise over a period, we anticipate an uptick in activities to shore up the capital base in FY 2025. In our view, the recapitalisation exercise would shape risk underwriting activities in the near term as insurers seek to generate adequate returns for shareholders. Thus, we expect the adoption of innovation on the back of technology to drive insurance penetration and improved risk retention on the back of the enlarged capital base.”

It added, “However, while a larger capital base can support long-term profitability, the industry may experience short-term challenges. The report notes that foreign currency revaluation gains, which have boosted earnings in recent years, are expected to decline due to a more stable exchange rate. This could lead to a lower return on equity (ROE), projected to drop to 22.8 per cent in 2025.

“We expect the enlarged portfolio with the potential to support profitability to stimulate a more efficient investment portfolio management. However, the expected stability of the exchange rate would moderate the foreign currency revaluation gains that have bloated the investment income and accounted for circa 50 per cent in FY 2023 and FY 2024. The anticipated decline in asset yield as the rebased consumer price index (CPI) depicts disinflation would also moderate the investment income. Thus, circa 957 basis points decline in the return on average investment is anticipated as the enlarged portfolio accentuates the impact of the moderated investment income.

“In FY 2025, we anticipate a decline in the Industry’s profitability, largely due to the lower foreign currency revaluation gains. Thus, a reduction in the post-tax return on average equity (ROE) to 22.8 per cent is expected. We believe that sustainable profit (excluding the volatile foreign currency revaluation gains) will maintain the upward trajectory, supported by stricter enforcement of compulsory insurance policies, a more efficient product distribution and an enlarged capital base to support the insurance income.”