The new minimum capital requirement for insurance companies in Nigeria

The New Minimum Capital Requirement for Insurance Companies in Nigeria- Things to Note


On May 20, 2019, the National Insurance Commission (NAICOM) issued Circular Number NAICOM/DPR/CIR/25/2019 titled ‘Minimum Paid-Up Share Capital for Insurance and Re-insurance Companies in Nigeria’ (the Circular).By the Circular, the NAICOM informed all Insurance and Re-insurance companies in Nigeria as well as stakeholders in the insurance sector of its new policy revising and increasing the minimum paid-up share capital applicableto players in the insurance sector.


The revisionwhich is based on the class of insurance business being carried out is as follows- 



Class of Insurance Business

Existing Minimum Paid-up Capital 

Revised Minimum Paid-up Capital (From May 20, 2019)


Life Insurance

N2,000,000,000 (Two Billion Naira)

N8,000,000,000 (Eight Billion Naira)



3,000,000,000 (Three Billion Naira)

N10,000,000,000(Ten Billion Naira)



N5,000,000,000 (Five Billion Naira)

N18,000,000,000 (Eighteen Billion Naira)



N10,000,000 (Ten Billion Naira)

20,000,000,000 (Twenty Billion Naira)


Departure from Tier Based Capitalisation Model


From the Circular,it seems that the NAICOM has decided to depart from its tier-based approach to minimum solvency capital model earlier adopted.


You may recall that the NAICOM, via a circular dated August 28, 2018, and titled ‘Tier Based Solvency Capital Policy for Insurance Companies in Nigeria’ attempted to raise the capital base of operators across the insurance sector in 2018 through a risk-based capitalisation scheme. Following protests and complaints by some stakeholders and an order of the Federal High Court restraining the policy from being enforced, that circular was subsequently withdrawn by the NAICOM. 


WithNAICOM’s new approach, there is no classification of insurance companies into tier-based groups.  Instead, the required minimum capital depends on the kind of insurance business carried out by the company. 



Applicationof the Circular


The revised paid-up share capital applies to all insurance and reinsurance companies in Nigeria except for Takaful Operators and Microinsurance companies.  This exclusion, it can be argued, is as a result of the fact that Takaful operators and Microinsurance business, by their very nature, should be allowed to develop before significant paid-up share capital requirements are applied to them.


Takaful is a type of Islamic insurance wherein members contribute money into a pool to guarantee each other against loss or damage. Takaful-branded insurance is based on Sharia or Islamic religious law, which explains how individuals are responsible to cooperate and protect one another. Takaful policies cover health, life, and general insurance needs.

Takaful operatorswere introduced as an alternative to the commercial insurance industry, which are believed to go against Islamic restrictions on riba (interest), al-maisir (gambling), and al-gharar (uncertainty) principles—all of which are outlawed in Sharia law.

Micro-insuranceoperators offer coverage to low-income households or to individuals who have little savings and is tailored specifically for lower valued assets and compensation for illness, injury or death.


Micro-insurancepolicies, like regular insurance, cover a wide variety of risks. These include both health risks and property risksinsurance for theft or fire, health insurance, term life insurance, death insurance, disability insurance and insurance for natural disasters, etc.


Deadlines for Compliance 


New companies applying for insuranceor reinsurancelicense from the NAICOM must comply with the new minimum paid-up share capital requirements at the point of registration with the NAICOM. 


Insuranceand/or reinsurance companies already existing before May 20, 2019 have a grace period of one year. Thus, such companies have between May 20, 2019,and June 30, 2020,to fully comply with the new policy. 


The Implication of Section 10 of the Insurance Act


Section 10 of the Insurance Act provides for insurance companies to deposit a portion of theirpaid-up share capital with the Central Bank of Nigeria.  The said Section provides that-


An insurer intending to commence insurance business in Nigeria after the commencement of this Act shall deposit the equivalent of 50 percent of the paid-up share capital referred to in Section 9 of this Act (in this Act referred to as the ‘Statutory Deposit’) with the Central Bank.


However, the Section goes further in sub-section (2) to state that on theregistration of the insurance or reinsurance company as an insurer, 80percentof the statutory deposit shall be returned with interest not later than 60 days after registration. 


Existing companies are expected to deposit an equivalent of 10 percentof the minimum paid up share capital with the Central Bank. 


By the above provisions, any company seeking an insurance licence from the NAICOM will be required to deposit 50% of the revised paid up share capital applicable to the insurance business it intends to engage in with the Central Bank of Nigeria. Once the registration with the NAICOM is completed, the CBN will return 80% of the deposited funds to the company with interest.  In the case of insurance companies already in existence, 10% of the applicable revised paid up share capital willbe deposited with the CBN.


Capital to be Paid-Up


It is important to note that the Circular refers only to paid-up capital. Paid-up share capital is the amount of money the company has received from shareholders in exchange for shares. 


Accordingly, the share capital deposit to be increased by insurance and reinsurance companies to give effect to the intention of the Circular is the paid-up share capital and not shareholders’ funds. Flowing from this, Section 10 of the Insurance Act applies to only the paid-up share capital of the insurance or reinsurance companies. 


Does the NAICOM have the powers to revise the paid-up capital via a Circular?


The National Insurance Commission Act, 1997 in Sections 6,7 and 64 and Sections 86 and 101 of the Insurance Act, 2003, makes it clear that the NAICOM, as the principal regulator of the insurance sector in Nigeria, has the power to administer, supervise, regulate and control the business of insurance in the country. 


Specifically, Section 9(4) of the Insurance Act, 2003 empowers the NAICOM to increase, from time to time, the amount of minimum paid-up share capital statutorily prescribed for Nigerian insurers. 


Thus, the NAICOM has the power to revise the paid-up capital via the Circular. 


Next Steps for Insurance and Reinsurance Companies 


With the revision, many insurance companies now need to raise additional capital to comply with the revised share capital requirement on or before June 30, 2020. This may result in further consolidation in the Nigerian insurance sector like that witnessed in the banking sector, as some insurers may seek to merge or be acquired to comply with the increased share capital requirements. In effect, this may lead to new private equity and M & A deals in the coming months. 


Also, from the date of the Circular, (May 20, 2019) any new applications to the NAICOM for the registration of insurance business must be accompanied by evidence of the statutory deposit while existing insurance and reinsurance companies will be required to increase their statutory deposit with the CBN to an amount equivalent to 10% of the revised share capital requirement for their respective class of insurance operations. 




The new policy is a welcome development and it is hoped it would result in a strengthening of the insurance industry in Nigeria.  Existing insurance companies are therefore obliged to start making plans to comply with the policy ahead of the June 30, 2020 deadline by either raising the additional capital themselves or considering business combinations with other players in the insurance to shore up their capital. 








Published on Tuesday, June 25, 2019
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