Nigeria strengthens its financial defences, but investors are still waiting for proof

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New capital rules have reshaped the insurance industry, while the central bank reports stronger reserves and reduced government financing. The numbers look better, but Nigeria’s credibility test is far from over.

LAGOS — Nigeria ended July with two major signals that its financial system may be moving onto firmer ground.

The National Insurance Commission, known as NAICOM, confirmed that 43 insurance and reinsurance companies had met the country’s new minimum capital requirements.

Days earlier, the Central Bank of Nigeria published its 2025 annual report, showing a balance sheet that had expanded by 18%, stronger foreign exchange reserves and a reduction in direct financing to the federal government.

Together, the developments point to a broader effort to rebuild confidence after years of regulatory weakness, foreign currency shortages, high inflation and heavy government dependence on central bank funding.

The headline figures are encouraging. But they require a cautious reading.

An insurance company can meet a minimum capital requirement and still be inefficient, unprofitable or slow to settle claims. A central bank can report more assets and a larger surplus without necessarily delivering lower inflation, affordable credit or a stable currency.

For investors and consumers, Nigeria’s challenge is no longer simply raising financial buffers. It is proving that those buffers can produce a more reliable financial system.

A major reset for Nigeria’s insurance industry

Nigeria’s insurance recapitalisation programme stems from the Nigeria Insurance Industry Reform Act of 2025, signed into law by President Bola Tinubu in late July 2025.

The legislation consolidated several older insurance laws and expanded NAICOM’s authority over insurers, reinsurers, compulsory insurance products, consumer protection and the resolution of failing companies.

The industry was given 12 months to comply, with a deadline of July 31, 2026.

Under the new framework, life insurance companies must hold minimum capital equivalent to approximately $7 million. The threshold rises to around $10.5 million for general insurers, $17.4 million for composite insurers operating in both life and non-life business, and $24.4 million for reinsurers, but the reform goes beyond headline capital figures.

Each company must hold the higher of the statutory minimum or a risk-based amount reflecting the size and nature of its own exposure.

For existing insurers, regulatory capital is calculated as the excess of admissible assets over liabilities after specific deductions. Goodwill, certain intangible assets, deferred tax assets, pledged assets and some related-party investments may not be counted.

That distinction is important.

In previous recapitalisation exercises, companies could appear adequately funded on paper while relying on assets that were illiquid, overvalued or difficult to recover. The new system is designed to measure the financial resources that would actually be available when claims fall due.

Forty-three firms have qualified, but the final market remains unclear

The first group of compliant firms includes 23 general insurers, 10 life insurance companies, eight composite insurers and two reinsurers.

Based on the statutory minimum requirements, those companies represent an estimated aggregate regulatory capital floor of approximately $498 million.

That does not necessarily mean the firms raised exactly that amount. Some may have capital significantly above the minimum, while others may have qualified through retained earnings, restructuring, asset sales or other balance sheet adjustments.

NAICOM has not yet published each company’s capital surplus, asset quality or individual solvency position.

A further eight insurers submitted documents near the deadline and remain under review. Their names have not been publicly disclosed.

That leaves investors, brokers, employees and policyholders without a complete picture of which companies will remain in the market and how concentrated the industry may become.

Companies that fail to comply could face several outcomes, including fresh capital injections, mergers, acquisitions, portfolio transfers, an orderly wind-down or other resolution measures imposed by the regulator.

Independent audits, actuarial assessments and financial reviews will be crucial to ensuring that policyholder obligations do not disappear when a company is acquired, merged or closed.

Capital alone will not solve Nigeria’s insurance problem

Nigeria’s insurance market remains one of the least developed among Africa’s major economies.

Insurance penetration is estimated at roughly 0.5% of gross domestic product, compared with approximately 11% in South Africa.

The gap is striking for a country seeking to build a trillion-dollar economy and mobilise long-term capital for housing, transport, agriculture, energy and infrastructure.

Nigeria’s insurers generated approximately $1.6 billion in gross written premiums in 2025, representing nominal growth of 47.3% in naira terms.

But strong premium growth does not necessarily mean that millions of new households and small businesses have purchased insurance.

The increase may partly reflect inflation, currency depreciation, higher asset values, premium repricing and the rising cost of corporate coverage.

The deeper challenge is public trust.

Many Nigerians continue to associate insurance with complicated contracts, poor customer service, delayed settlements and disputes over claims. Others have limited knowledge of insurance products or rely on informal family and community support during emergencies.

Mandatory insurance rules are also poorly enforced, while fake certificates continue to circulate in parts of the market.

The new law therefore combines higher capital standards with stricter enforcement of compulsory insurance, greater digitalisation, policyholder-protection measures and tighter claims-payment deadlines.

That suggests the government recognises that Nigeria’s insurance deficit is not only financial. It is also behavioural and institutional.

Stronger insurers could retain more risk inside Nigeria

Better-capitalised insurance companies could allow Nigeria to retain a larger share of the risks associated with oil, aviation, energy, construction and major infrastructure projects.

At present, significant portions of those risks are transferred to foreign reinsurers because local companies lack the capital or technical capacity to absorb large potential losses.

Greater domestic risk retention could keep more premium income inside Nigeria and deepen local financial markets.

Insurers could also invest their technical reserves in government bonds, infrastructure projects and other long-term assets.

But those benefits will depend on the quality of underwriting, investment management and claims administration.

A company with more capital can still make poor risk decisions. It can also lose public confidence if claims remain difficult or slow to collect.

Consolidation could create stronger firms, and fewer choices

The recapitalisation programme is likely to trigger mergers and acquisitions across the sector.

Fewer but stronger companies could reduce the risk of insolvency and improve the industry’s capacity to pay large claims. However, excessive consolidation could create a different problem, a highly concentrated market may weaken competition, increase prices and reduce incentives for product innovation and customer service.

NAICOM will therefore have to balance the resolution of weaker companies with the need to protect policyholders, maintain continuity of cover and preserve meaningful competition.

The regulator’s handling of companies that narrowly miss the deadline may be just as important as the initial list of firms that qualified.

The central bank’s balance sheet is bigger, but profitability is mixed

The Central Bank of Nigeria’s 2025 accounts tell a similarly complicated story, the bank’s standalone assets increased from approximately $76.5 billion to $96.6 billion. On a consolidated group basis, assets reached about $96.7 billion.

Liabilities also rose, reaching approximately $96.2 billion at the bank level and $96.1 billion for the consolidated group.

The central bank’s standalone operating surplus fell by 47.6% in naira terms, from roughly $107.9 million to $60.5 million.

The consolidated result moved in the opposite direction. Group surplus increased by approximately 178% in naira terms, from around $25.3 million to $75.3 million.

Under Nigeria’s fiscal responsibility framework, approximately $48.4 million, representing 80% of the operating surplus, is expected to be transferred to the federal government.

For a commercial bank, analysts would focus heavily on profitability, return on assets and return on equity.

A central bank must be judged differently.

The CBN’s primary responsibilities include price stability, liquidity management, banking supervision, management of external reserves and protection of the wider financial system.

A larger surplus may reflect interest income, exchange rate movements or accounting adjustments. It does not automatically mean that households and businesses are facing lower borrowing costs or greater economic stability.

Nigeria’s banks are showing signs of pressure

The annual report shows that the banking sector’s non-performing loan ratio increased to 7.51%, above the prudential ceiling of 5%, the capital adequacy ratio also declined from 15.25% to 12.35%.

Part of the deterioration followed the end of temporary regulatory forbearance measures that had allowed banks to delay the classification of some troubled loans.

The figures show the strain that can emerge when an economy begins to stabilise after a period of major disruption.

Macroeconomic indicators may improve before corporate borrowers and banks have fully absorbed the effects of inflation, currency depreciation, high interest rates and weaker consumer demand.

The decline in capital adequacy does not necessarily signal an immediate banking crisis. But it suggests that asset quality and capital preservation will remain important issues for regulators.

Foreign reserves have improved significantly

One of the clearest improvements in the CBN’s accounts is the recovery in foreign exchange reserves, gross reserves increased by 13.85%, rising from $40.19 billion to $45.75 billion, that was enough to cover approximately 8.8 months of imports of goods and services, the naira also ended 2025 at approximately 1,435.76 to the US dollar, compared with 1,535.82 at the end of 2024.

More importantly, net foreign exchange reserves increased to $34.8 billion at the end of 2025, up from $23.11 billion a year earlier and only $3.99 billion at the end of 2023.

Net reserves exclude certain short-term liabilities, including some swaps and forward contracts.

The sharp increase represents a meaningful improvement in the central bank’s ability to meet external obligations and intervene in the foreign exchange market.

It also suggests progress in addressing a period marked by dollar scarcity, import restrictions and delays in the repatriation of foreign investment income.

Gross reserves do not tell the whole story

Despite the improvement, reserve figures must be interpreted carefully.

Gross reserves show the overall stock of foreign currency assets. Net reserves provide a clearer indication of what remains after deducting certain obligations.

Nigeria’s broader net foreign asset position also presents a more complicated picture.

In naira terms, financial system net foreign assets fell by 1.42%, from ₦31.96 trillion to ₦31.51 trillion. Dollar-based comparisons can produce a different result because the naira strengthened during the period.

Net foreign reserves and net foreign assets are not the same measure.

Net reserves refer more directly to the central bank’s available resources after specified obligations. Net foreign assets cover a wider accounting position involving both the CBN and commercial banks.

The divergence does not erase the recovery in reserves. But it does mean that the full gross reserve figure should not automatically be treated as immediately available, unencumbered or free of financial cost.

Government borrowing from the central bank remains sensitive

The most legally and politically sensitive part of the accounts concerns the relationship between the CBN and the federal government.

Ways and Means advances are temporary central bank loans used to cover shortfalls in government revenue.

The balance declined from approximately $2.13 billion to $2.07 billion in 2025, representing an 8.91% reduction in naira terms. The decline was driven by government repayments.

That figure should be distinguished from the approximately $18.39 billion in federal government debt securities held by the central bank.

The securities represent a broader measure of the CBN’s exposure to the state and declined by only 1.3% in naira terms.

Some earlier Ways and Means advances were converted into longer-term securities. But the published accounts do not provide a single, easily understood reconciliation between the outstanding advances, the amounts converted into securities and the central bank’s total exposure to government debt.

That lack of clarity matters because monetary financing can weaken the central bank’s ability to control inflation.

The more a government relies on central bank funding, the greater the risk of excess liquidity, reduced monetary policy independence and additional pressure on the currency.

Auditors highlighted a compliance issue

The auditors issued an unqualified opinion on the financial statements, meaning they concluded that the accounts were fairly presented in all material respects.

However, they also included an emphasis-of-matter paragraph concerning compliance with Section 38 of the CBN Act and the accounting basis applied.

The publicly available report does not fully explain the issue.

Readers cannot determine from the published information alone the exact nature of the possible breach, the period affected, the amount involved or the corrective action being taken.

The disclosure gap does not automatically mean that the entire Ways and Means balance is unlawful.

Nor does it mean that the central bank would normally be responsible for private losses caused by currency depreciation. Claims resulting from exchange rate movements would generally depend on the terms of the underlying loans, supply contracts, import agreements or foreign currency obligations.

The more immediate concern is one of public accountability.

It involves compliance with the central bank’s governing law, parliamentary oversight, transparency in Treasury operations and the separation between monetary policy and government budget financing.

What investors will watch next

Nigeria’s insurance recapitalisation is a forward-looking test, it is intended to ensure that companies possess sufficient financial resources before taking on new risks.

The CBN’s annual accounts are largely backward-looking. They show how the central bank managed reserves, banking supervision, government financing and liquidity during 2025.

For the insurance industry, the next disclosures may be more important than the initial list of approved companies.

Investors and policyholders will be watching the final decisions on firms still under review, each insurer’s surplus capital, the implementation of the risk-based capital regime, claims-payment ratios, settlement times and any mergers or portfolio transfers.

Meeting the minimum threshold does not, by itself, prove that a company will remain solvent or pay claims promptly.

For the central bank, attention will focus on the gap between gross and net reserves, the direction of net foreign assets, total government exposure, the reconciliation of Ways and Means advances and the quality of assets across the banking system.

The timely publication of future audited accounts will also matter.

Nigeria has gained capacity. Now it must earn trust

Nigeria has strengthened two important financial defences, its insurers are entering a tougher capital regime, while its central bank holds significantly stronger foreign exchange reserves, but regulatory capital cannot replace proper risk management, gross reserves cannot replace monetary independence.

And the publication of financial statements cannot replace clear explanations of how public institutions use their balance sheets.

Nigeria’s financial system appears stronger than it was a year earlier. The real test will be whether those improvements translate into faster claims payments, greater fiscal discipline, stronger banks, lower inflation and a more stable currency.

The country has created additional financial capacity, it must now convert that capacity into public and investor trust.