Professional Application of Loss Reserving Methods in Nigerian Non-Life Insurance Companies

This study examines the professional application of loss reserving methods in Nigerian non-life insurance companies and evaluates the accuracy, consistency, and regulatory compliance of current reserving practices. Loss reserves represent the largest liability on a non-life insurer's balance sheet, and their accuracy is critical for solvency assessment, financial reporting, and management decision-making. In Nigeria, reserving practices vary widely across companies, and limited actuarial involvement in the reserving process has been identified as a governance weakness by NAICOM. This study uses a practitioner survey and document review design, collecting data from 60 actuarial, claims, and finance professionals in 18 non-life insurance companies. Reserving methods examined include the chain-ladder method, Bornhuetter-Ferguson technique, and average cost per claim approach. Reserve adequacy is assessed by comparing booked reserves to subsequent development outcomes for accident years 2019 to 2022. Regression analysis identifies company-level factors associated with reserve accuracy. Findings reveal that actuarial certification of reserves is associated with significantly higher reserve accuracy, with a mean reserve error of 8 percent for actuarial-certified reserves compared to 22 percent for non-actuarial reserving processes. Smaller companies relying on claims management estimates show the highest reserve volatility. The study concludes that professional actuarial involvement in loss reserving significantly improves accuracy and regulatory compliance in Nigerian non-life insurance. It recommends mandatory actuarial sign-off on loss reserves for all licensed non-life insurers above a minimum premium threshold.

Keywords: loss reserving, chain-ladder method, non-life insurance, actuarial certification, NAICOM.