Evaluation of Risk-Based Capital Framework Adoption by Nigerian Insurers

This study evaluates the progress and challenges of adopting the risk-based capital framework by Nigerian insurance companies, following NAICOM's initiative to move beyond prescriptive minimum capital requirements toward a risk-sensitive solvency regime. Risk-based capital frameworks, modelled on international standards such as Solvency II and the IAIS Insurance Capital Standard, require insurers to hold capital commensurate with their specific risk profiles, promoting more efficient capital allocation and stronger solvency protection. This study uses a survey design, collecting data from 70 actuarial, finance, and compliance officers in 20 insurance companies across Lagos and Abuja. The survey assessed awareness of RBC requirements, implementation progress, data readiness, and resource constraints. Descriptive statistics and regression analysis are applied. Findings reveal that large insurers and those with foreign parent affiliations are significantly more advanced in RBC implementation, while smaller domestic insurers report data inadequacy and skilled staff shortages as the primary implementation barriers. Only 35 percent of sampled companies had completed internal capital model development at the time of the survey. The study concludes that NAICOM's RBC transition timeline faces significant implementation capacity constraints, particularly among smaller insurers. It recommends a phased RBC adoption roadmap with standardized formula approaches for smaller companies and mandatory actuarial capacity-building support funded through a levy on the insurance industry.

Keywords: risk-based capital, solvency framework, NAICOM, insurance regulation, capital adequacy.