By Henry Uche
Reinsurance serves as the backbone of the insurance industry, enabling insurers to manage risks effectively by transferring portions of their liabilities to reinsurers. This mechanism helps mitigate financial shocks, enhances industry stability, and ensures insurers can meet claims obligations even in the face of large-scale losses.
In Nigeria, the reinsurance sector is steadily evolving, driven by a mix of regulatory frameworks, increasing market awareness and growing partnerships with global players. However, the sector still faces challenges such as limited capital, currency volatility and low insurance penetration, which collectively hinder its ability to achieve full maturity.
To gain a clearer understanding of the state of reinsurance in Nigeria and explore solutions for its advancement, industry experts provided insights on key issues, including regulatory sufficiency, industry trends, growth strategies, and the path forward. Their perspectives offer a comprehensive outlook on the sector’s challenges, opportunities, and the necessary steps to position Nigeria as a formidable force in global reinsurance.
Current reinsurance landscape
For many industry watchers, Nigeria’s reinsurance sector is at a crossroads, while progress has been made, structural inefficiencies continue to pose obstacles.
Mr. Ogonna Offor-Orabueze, Executive Director, Technical, Guinea Insurance PLC, describes the industry as “gradually evolving but still facing significant bottlenecks.”
He notes that while Nigeria has established reinsurance companies and engages with international partners, key issues such as inadequate capitalisation, limited risk diversification, and foreign exchange volatility constrain growth. He further points out that Nigeria’s low insurance penetration reduces the demand for reinsurance, affecting overall market development.
Despite these challenges, Offor-Orabueze remains optimistic, citing ongoing regulatory reforms, technological advancements, and an increasing awareness of risk management solutions as catalysts for positive change.
Similarly, Mr. Sunday Arowojaiya, Reinsurance Manager, Heirs Insurance Brokers, acknowledges that while the sector has recorded some progress, it is still heavily reliant on foreign reinsurers due to constraints such as limited capital, insufficient local expertise, and outdated operational infrastructure. However, he notes that NAICOM’s recapitalization efforts and the growing investments by local players signal a shift toward a more resilient reinsurance market.
Arowojaiya also highlights the growing role of insurance brokerage firms like Heirs Insurance Brokers (HIB) in enhancing market efficiency. According to him, HIB has established a robust reinsurance unit to bridge critical market gaps and support primary insurers with risk management solutions.
On his part, Dr. Abass Olufemi, former Head of Department, Insurance, Lagos State University (LASU), expresses a more optimistic view, stating that Nigeria’s reinsurance business is “making steady progress.” He notes that several local reinsurance firms are expanding their capacity and assuming larger risks, which is a positive indicator of sectoral growth. While he acknowledges that the industry is not yet fully developed, he believes that the foundation for long-term sustainability is being laid.
Strategic pathways for a stronger reinsurance market
To elevate Nigeria’s reinsurance sector and unlock its full potential, experts propose a strategic roadmap focusing on increased capitalization, market expansion, technological integration and regulatory refinement.
Strengthening capitalisation for increased capacity
One of the primary limitations facing Nigerian reinsurers is their relatively low capital base, which restricts their ability to underwrite large risks.
Offor-Orabueze stresses the need for substantial recapitalization to enhance underwriting capacity and competitiveness. He points out that higher capital reserves will enable local reinsurers to assume more significant risks, reducing dependence on foreign reinsurance markets.
Arowojaiya supports this viewpoint, emphasizing that increased capital will not only improve risk-bearing capacity but also build confidence among insurance companies and policyholders. He notes that NAICOM’s ongoing recapitalization initiative is a step in the right direction, but it must be fully implemented to achieve its desired impact.
Dr. Olufemi highlights the importance of financial liquidity, stating that for reinsurance companies to effectively act as risk buffers, they must have strong balance sheets. He advocates for policies that encourage capital inflow into the sector, including incentives for investors and tax reforms that support reinsurance growth.
Expanding market awareness and boosting insurance penetration
The effectiveness of reinsurance is directly tied to the strength of the primary insurance market. However, Nigeria’s insurance penetration remains one of the lowest in Africa, limiting the demand for reinsurance services.
Offor-Orabueze calls for aggressive public awareness campaigns to drive the adoption of primary insurance, which will, in turn, increase demand for reinsurance. He argues that a well-informed populace will be more inclined to secure insurance coverage, leading to a larger pool of risks that require reinsurance backing.
Arowojaiya echoes this sentiment, adding that a lack of understanding about reinsurance among many insurers and brokers contributes to underutilization of available services. He believes that market education should be a priority for industry stakeholders.
Leveraging technology for efficiency and innovation
Technology is reshaping the global insurance and reinsurance landscape, and Nigeria must embrace digital transformation to remain competitive.
Offor-Orabueze highlights the role of artificial intelligence, data analytics, and predictive modeling in enhancing risk assessment and underwriting accuracy. He calls for increased investment in InsurTech solutions to modernize reinsurance operations.
Arowojaiya describes technology as a “game-changer” for the industry. He notes that Heirs Insurance Brokers is leveraging digital tools to streamline processes, improve client engagement, and optimize risk assessment. He urges other players to follow suit in adopting innovative technologies.
Strengthening local-international collaboration
Partnerships between Nigerian reinsurers and global players can facilitate knowledge transfer, improve technical expertise, and expand market reach.
Offor-Orabueze calls for increased collaboration between local and international reinsurers, arguing that exposure to global best practices will strengthen Nigeria’s technical capacity.
Arowojaiya advocates for more strategic alliances between reinsurance companies, brokers, and regulators. He emphasizes that such collaborations can bridge skill gaps and promote industry development.
Regulatory sufficiency: Are Nigeria’s laws adequate?
While Nigeria’s regulatory framework is relatively robust, experts agree that some areas require refinement to align with modern market realities.
Offor-Orabueze notes that existing laws must be modernized to accommodate emerging risks such as cyber threats, climate change, and technological disruptions.
Arowojaiya agrees, stating that regulatory policies should be adaptable to evolving industry dynamics. He calls for more engagement between regulators and industry stakeholders to ensure that policies remain relevant.
Again, regulatory enforcement remains a key concern in the industry. Offor-Orabueze stresses the need for stricter compliance mechanisms to prevent unethical practices and promote market discipline.
Dr. Olufemi, however, believes that Nigeria’s local content directive—requiring risks to be exhausted locally before being ceded abroad—is a significant step toward industry protection. He supports rigorous enforcement of this policy to strengthen indigenous reinsurers.
Way forward
To establish a globally competitive reinsurance industry, stakeholders must take decisive action in the following areas: Strengthening capitalisation by ensuring local reinsurers have robust financial reserves to underwrite large risks.
Driving awareness campaigns to increase insurance penetration and by extension, reinsurance demand is also crucial.
Leveraging technology to optimise underwriting, claims management, and risk assessment and fostering collaborations with global reinsurers to improve expertise and capacity.
Experts also pushed for regulatory modernization where policies are updated to reflect current market realities and ensure effective enforcement.
For experts, Nigeria’s reinsurance sector is on a growth trajectory, but challenges such as low capitalization, limited awareness, and regulatory gaps must be addressed to unlock its full potential. By implementing strategic reforms, fostering innovation, and deepening market participation, Nigeria can position itself as a leading reinsurance hub in Africa and beyond.
They insist that with the right policies, investments and collaborative efforts, the future of reinsurance in Nigeria holds immense promise for industry players and the broader economy.