Reinsurance and Risk Diversification Among Nigerian Insurance Firms

This study investigates the role of reinsurance in risk diversification among insurance companies operating in Nigeria. Reinsurance allows primary insurers to transfer portions of their risk portfolios to reinsurance companies, enabling them to underwrite larger risks, stabilize their loss experience, and comply with solvency capital requirements. In Nigeria, the reliance on foreign reinsurance markets, particularly in London and continental Europe, raises concerns about premium exportation and the capacity of domestic reinsurers such as Africa Reinsurance Corporation and Continental Reinsurance to absorb local risk. This research employs a secondary data design using published financial statements and reinsurance cession data from fifteen insurance companies over the period 2020 to 2023. Variables include cession ratios, types of reinsurance treaties adopted, premium retention rates, and loss ratio stability. Descriptive statistics and correlation analysis are applied to assess the relationship between reinsurance utilization and the volatility of net claims experience. Preliminary findings are anticipated to reveal high dependence on proportional treaty arrangements and significant cession rates that reduce net premium retention below optimal levels for domestic market growth. The study recommends policy interventions to strengthen domestic reinsurance capacity and incentivize facultative reinsurance placement within the Nigerian market. Keywords: Reinsurance, Risk Diversification, Nigerian Insurance Market, Premium Retention, Reinsurance Treaty.