Enterprise Risk Management and Capital Optimisation in Nigerian Insurance Groups

This study examines enterprise risk management practices and capital optimization strategies in Nigerian insurance holding companies and groups. The growth of insurance conglomerates through cross-subsidiary ownership and diversified underwriting portfolios creates complex group-level risk interactions that require sophisticated ERM frameworks beyond single-entity risk management. Capital optimization, which seeks to allocate capital most efficiently across group entities based on risk-adjusted return, is a key actuarial and strategic management challenge for insurance group management teams. This study uses a case study and survey design, analyzing ERM documentation and capital allocation practices in five Nigerian insurance groups with combined entities operating in life, non-life, health, and reinsurance, supplemented by interviews with 28 group risk officers and actuaries. Capital allocation techniques including marginal contribution models, risk-adjusted return on capital analysis, and diversification benefit quantification are assessed. Findings reveal that most Nigerian insurance groups apply simplistic capital allocation methods based on regulatory minimum requirements rather than economic capital principles. Group diversification benefits, which can reduce aggregate capital requirements by 15 to 30 percent in more diversified groups, are rarely formally computed or used in capital management decisions. The study concludes that actuarial-driven economic capital frameworks for Nigerian insurance groups can materially improve capital efficiency. It recommends that NAICOM introduce group solvency supervisory requirements that incentivize formal economic capital modelling at the conglomerate level.

Keywords: enterprise risk management, capital optimization, insurance groups, economic capital, NAICOM.