Paragraph 1: Introduction and Repeal of Existing Legislation
The Nigerian House of Representatives has taken a significant step towards modernizing its insurance sector by enacting the Nigeria Insurance Industry Reform Act, 2024. This landmark legislation aims to establish a comprehensive and robust legal and regulatory framework for insurance operations within the country. The Act replaces several outdated laws, including the Insurance Act of 2004, the Marine Insurance Act of 2004, the Motor Vehicle (Third Party) Insurance Act of 2004, the National Insurance Corporation of Nigeria Act of 2004, and the Nigerian Insurance Reinsurance Corporation Act of 2004. This move signals a commitment to strengthening the insurance industry and aligning it with current global practices. The passage of the bill was finalized following a clause-by-clause review and concurrence with the Senate’s version, demonstrating a collaborative effort to enhance the insurance landscape.
Paragraph 2: Objectives and Licensing Requirements
The core objective of the Nigeria Insurance Industry Reform Act, 2024, is to regulate the insurance industry with the aim of fostering its growth and safeguarding the interests of all stakeholders. This includes protecting policyholders, prospective policyholders, and other parties involved in insurance policies. The Act seeks to achieve these goals while promoting a competitive, innovative, and sustainable insurance industry. The legislation mandates that all entities engaged in insurance, reinsurance, or related businesses in Nigeria must obtain a license from the designated commission. The application process involves submitting a prescribed form along with any additional documentation or information requested by the commission. Furthermore, the commission is obligated to publish a service charter outlining its products, services, and the comprehensive requirements for obtaining them, ensuring transparency and accessibility for the public.
Paragraph 3: Licence Cancellation and Capital Requirements
The Act also outlines specific grounds for the cancellation of an operating license, including instances where an insurer fails to adhere to sound insurance principles, does not meet the prescribed capital or solvency requirements, or ceases insurance operations for a period of at least one year. These provisions are designed to ensure the financial stability and integrity of the insurance sector. A crucial aspect of the new law is the establishment of minimum capital requirements for various insurance activities. Non-life insurance businesses must maintain a minimum capital of N15 billion or a risk-based capital as determined by the commission, whichever is higher. Life assurance businesses are subject to a similar requirement, with a minimum capital of N10 billion or a risk-based capital. Reinsurance businesses face the highest minimum capital requirement, set at N35 billion or a risk-based capital, again whichever is higher.
Paragraph 4: Risk-Based Capital and Statutory Deposits
The commission is empowered to determine the risk-based capital, taking into account factors such as insurance risk, market risk, credit risk, and operational risk. This approach allows for a more tailored assessment of capital adequacy based on the specific risks faced by each insurer. To further strengthen financial security, the Act introduces statutory deposit requirements for new and existing insurers. New insurers entering the Nigerian market are obliged to deposit 50% of the minimum capital requirement with the Central Bank of Nigeria. Upon successful registration, 80% of this deposit, along with accrued interest, is returned within 60 days. Existing companies are required to deposit 10% of the stipulated minimum capital.
Paragraph 5: Statutory Deposit Interest and Investment
The Act stipulates that any statutory deposit made with the Central Bank of Nigeria will accrue interest at the minimum lending rate set by the bank, calculated annually on January 1st. This provision ensures that the deposited funds generate returns for the insurers. Furthermore, the legislation allows for the investment of these statutory deposits in treasury bills or other secure investments guaranteed by the Federal Government, subject to the commission’s approval. This flexibility offers insurers the opportunity to optimize the returns on their deposited funds while maintaining a secure investment strategy.
Paragraph 6: Impact and Significance
The Nigeria Insurance Industry Reform Act, 2024 represents a significant overhaul of the country’s insurance regulatory framework. By consolidating existing legislation, introducing stricter capital requirements, and enhancing transparency, the Act seeks to strengthen the insurance sector, protect policyholders, and promote a more robust and competitive insurance market. The implementation of risk-based capital requirements and the management of statutory deposits are crucial steps toward ensuring the financial stability of insurers and safeguarding the interests of all stakeholders. This comprehensive reform is anticipated to attract more investment, foster innovation, and ultimately contribute to the growth and development of the Nigerian insurance industry. The Act’s focus on protecting policyholders and stakeholders signals a shift towards a more consumer-centric approach in insurance regulation, fostering trust and confidence in the sector.
