Solvency Margin Trends and Insolvency Predictors in Nigerian Insurance Companies: A Survival Analysis

This study applies survival analysis techniques to examine solvency margin trends and identify leading indicators of insolvency in Nigerian insurance companies using panel data covering the period 2008 to 2023. Insurance company insolvency imposes severe welfare losses on policyholders and destabilizes public confidence in the market. Early identification of insolvency risk signals enables timely regulatory intervention. Existing NAICOM supervisory tools focus primarily on current ratio-based solvency measures that may not capture the dynamic deterioration trajectory leading to failure. This study uses financial data for all companies that held NAICOM licenses at any point from 2008 to 2023, including 18 companies that had their licenses revoked or who failed during this period. Cox proportional hazard models and accelerated failure time models are applied to identify financial ratios and company characteristics that predict time-to-insolvency. Time-varying covariates include solvency margin, combined ratio, reserve development ratio, premium growth rate, and investment return. Findings reveal that negative combined ratio trend, reserve development deterioration, and rapid premium growth are the strongest leading indicators of insurance company insolvency in Nigeria, with predictive power emerging one to two years before failure. Small company size is also a significant insolvency predictor. The study contributes an original Nigerian insurance insolvency prediction model and recommends that NAICOM implement a dynamic early warning scoring system using the identified predictors for proactive supervisory intervention.

Keywords: solvency, insolvency prediction, survival analysis, Cox model, insurance supervision.