The Effect of Corporate Governance Quality on Financial Stability in Nigerian Insurance Companies: An Actuarial Perspective

This study examines the effect of corporate governance quality on financial stability in Nigerian insurance companies from an actuarial perspective, integrating governance indicators with actuarial financial health metrics. Corporate governance failures, including board capture, conflicts of interest, and inadequate actuarial oversight, have been implicated in insurance company distress globally. In Nigeria, NAICOM has strengthened governance requirements through the Corporate Governance Code for Insurance Industry, but the empirical relationship between governance quality and actuarial financial stability indicators has not been rigorously tested. This study uses panel data from 25 insurance companies for the period 2016 to 2023. Corporate governance quality is assessed using a composite index incorporating board independence, audit committee effectiveness, actuary function independence, and risk management oversight. Financial stability is measured using solvency margin, reserve adequacy ratio, liquidity coverage ratio, and combined operating ratio. Two-stage least squares regression addresses endogeneity between governance quality and financial outcomes. Findings reveal that governance quality is significantly and positively associated with all four financial stability measures, with actuary function independence showing the strongest individual effect. Companies with chief actuaries reporting directly to the board rather than to the CFO demonstrate solvency margins averaging 35 percent above those with less independent actuarial functions. The study contributes an original actuarial governance-stability model for Nigerian insurance companies and recommends mandatory reporting of actuarial function independence status in all licensed insurer annual reports.

Keywords: corporate governance, financial stability, actuarial function, insurance companies, Nigeria.