Modelling Catastrophic Risk and Its Implications for Insurance Capacity in North East Nigeria

This study models catastrophic risk exposures arising from conflict, displacement, and natural hazards in North East Nigeria and examines their implications for insurance market capacity and product development. The Boko Haram insurgency and related security crises have created a unique and severe risk environment in the Northeast, generating large-scale property destruction, population displacement, and agricultural losses. Quantifying these risks in actuarial terms is essential for designing appropriate insurance solutions and informing government risk financing strategies. This study uses secondary loss data from NEMA, the International Organization for Migration, and humanitarian agency assessments for Borno, Adamawa, and Yobe States for the period 2018 to 2023. A compound Poisson-Pareto model is fitted to conflict-related property loss data to characterize the frequency and severity distribution of catastrophic events. Probable maximum loss estimates at 100-year and 250-year return periods are computed. Findings reveal that probable maximum losses from conflict-related catastrophes in the Northeast substantially exceed the aggregate retention capacity of the Nigerian domestic insurance market, necessitating significant international reinsurance support for any meaningful coverage program. Commercial insurance penetration in the Northeast is near zero. The study concludes that conventional commercial insurance is insufficient for addressing catastrophic risk in the Northeast and recommends government-backed risk financing mechanisms, including disaster risk insurance pools with international reinsurance arrangements, as the appropriate framework.

Keywords: catastrophic risk, North East Nigeria, insurance capacity, disaster risk financing, conflict risk.