Underwriting, Counterparty, Operational Risks Will Test Insurers’ New Capital – Expert

DataPro Limited has said that Nigeria’s newly recapitalized insurers will face immediate tests from counterparty, underwriting and operational risks.

In its report, ‘Insurance Today: RAAC, Capital & Ratings’, the rating agency said while the National Insurance Commission (NAICOM) has cleared 48 insurance companies and two reinsurance companies that met the new minimum capital requirements under the Nigerian Insurance Industry Reform Act (NIIRA), meeting the threshold is not the end of the story.

DataPro said capital gives insurers the financial capacity to absorb unexpected claims, investment losses and other shocks, and can also support greater underwriting capacity and financial flexibility.

It however noted that a larger capital base does not automatically mean a stronger credit profile.

“Rating Agencies consider not only how much capital an insurer has but also its quality, sustainability and ability to preserve it through different operating conditions,” the report stated.

It explained that “governance sets the direction, risk management identifies exposures, controls provide discipline, reliable data supports decision-making, and people, systems, technology and expertise determine capability.”

“For credit ratings, this matters because capital can be eroded when the links supporting it are weak,” DataPro said.

It added that “an insurer may have a strong capital position but still face pressure if underwriting is poorly managed, controls are ineffective, risks are concentrated, or decision-making is not supported by reliable information.”

DataPro listed three key risks that will test insurers’ new capital buffers: counterparty and credit risk from concentrated exposures, underwriting risk from poor pricing and claims management, and operational risk from technology failures, fraud and weak controls.

“The ability to anticipate and manage these risks will therefore be as important as the size of the capital base itself,” DataPro stated.

DataPro stated that recapitalization has raised the financial capacity of compliant insurers, but the next phase is about turning that capacity into resilience.

“For Rating Agencies, stronger capital is a positive starting point, but sustainable credit strength will depend on the quality of governance, risk management, controls, data and organizational capability supporting it,” the firm said.

Also, the vice chairman of Highcap Securities Limited, David Adonri stated that “recapitalisation is welcome, but it is not the destination. Without tighter underwriting discipline, better counterparty selection, and stronger operational controls, the new capital will just be eroded. Regulators must enforce, and operators must prove they can deploy capital profitably, not just hold it.”