The Effect of Reinsurance Utilization on the Solvency of Nigerian Insurance Companies

This study empirically examines the effect of reinsurance utilization on the solvency position of Nigerian insurance companies using a panel of fifteen firms from 2016 to 2023. Reinsurance serves as a primary mechanism for capital relief and risk stabilization, theoretically enabling primary insurers to maintain solvency under adverse loss scenarios. In Nigeria, NAICOM's solvency margin requirements establish minimum capital thresholds, and reinsurance cession is permitted as a solvency risk management tool. Yet the empirical relationship between reinsurance intensity and actual solvency outcomes in Nigerian insurance companies has not been rigorously tested. The study uses panel data regression with reinsurance cession ratio and reinsurance premium ceded as independent variables, and the solvency margin ratio and capital adequacy ratio as dependent variables. Control variables include firm age, premium growth rate, investment return, and loss ratio. The Hausman test determines between fixed and random effects specifications. Endogeneity between reinsurance decisions and solvency is addressed using instrumental variable techniques. Preliminary findings are expected to demonstrate a positive and statistically significant relationship between reinsurance utilization and solvency margin maintenance, with stronger effects for non-life insurers. The research fills an empirical gap in the Nigerian insurance literature and informs NAICOM guidance on acceptable reinsurance structures for solvency optimization. Keywords: Reinsurance, Solvency, Insurance Companies, Nigeria, Capital Adequacy.