Risk Management Frameworks and Solvency Compliance in Nigerian Insurance Companies

This study assesses the effectiveness of enterprise risk management frameworks in supporting solvency compliance among Nigerian insurance companies. The insurance sector is inherently exposed to multiple risk categories including underwriting risk, market risk, liquidity risk, and operational risk. A robust ERM framework is essential for identifying, measuring, and managing these exposures in a way that protects policyholder interests and ensures regulatory solvency compliance. This study uses a survey design, collecting data from 95 risk officers, chief actuaries, and compliance managers in 25 insurance companies operating in Lagos, Port Harcourt, and Kano. ERM maturity is assessed using a five-level framework covering risk governance, risk appetite articulation, risk quantification, and risk reporting. Solvency compliance is measured using NAICOM-reported solvency margins and regulatory action histories. Regression analysis is applied. Findings reveal that insurers with advanced ERM maturity ratings demonstrate solvency margins averaging 42 percent above the regulatory minimum, compared to only 11 percent above minimum for lower-maturity companies. Risk governance quality, particularly the independence of the risk function from business units, emerges as the strongest ERM predictor of solvency compliance. The study concludes that investment in ERM capability significantly reduces solvency risk in Nigerian insurance companies. It recommends that NAICOM introduce mandatory ERM maturity assessments as part of its annual supervisory review process and publish company-level maturity scores as a market transparency measure.

Keywords: enterprise risk management, solvency compliance, insurance regulation, NAICOM, risk governance.