The National Insurance Commission (NAICOM) has developed regulatory guidance to enhance the growth of insurance practice in the country. In this piece, JOSEPH INOKOTONG chronicles aspects of the guidelines on Enterprise Risk Management and Internal Control Framework for Takaful and Retakaful Operators in Nigeria.

THE Insurance industry in Nigeria has grown in leaps and bounds over the years, contributing significantly to the growth of the nation’s economy. For instance, the total Assets of Nigeria’s Insurance industry stood at N2.328 trillion in the fourth quarter of 2022, sustaining a growth that signifies expansion at the rate of 2.4 percent, quarter-on-quarter (QoQ) and at 4.4 percent, year-on-year (YoY). The figure is relatively at a lower momentum compared to the prior period when the progression rate was recorded at about nine percent (YoY). The growth has been attributed to the wave of recapitalisation drive recorded in that period.

The Insurance Market Performance Bulletin, the NAICOM statistics department quarterly report of the insurance market for fourth quarter, 2022, however, states that “the outlook of the market growth in terms of assets remains positive, with increasing measures of market deepening and development, recapitalisation drive still ongoing, regulatory Insurance laws, provisions enshrined in the Insurance bill being reviewed anddigitisation of the supervisory wide processes would lead to the realisation of the vast potentials in the insurance industry.”

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A cursory look into the market size distribution with respect to Life and Non-Life Insurance businesses during the period under review shows that Non-Life Insurance business recorded N1.122.1 trillion, while Life Insurance Business had N1.206.6 trillion. The gross premium income generated as at the fourth quarter of 2022 stood at N726.2 billion, representing a growth proportion of about 36.3 percent, QoQ, and indeed, about 18 percent (17.8 percent) year on year.

This remarkable development, when compared to the real growth 3.5 percent of Gross Domestic Product (GDP) over the same period is attributable to consistent regulatory measures being carried out by the Commission. In this regard, the industry continued to post inspiring numbers in business retention, despite the operational challenges posed in domestic and global economies, and reflective of the market resilience and increasing capacity.

Again, in the period under review, the industry-wide average premium retention capacity ratio stood at 71.3 percent, although, slightly a point lower than it held in the previous quarter and four points lower in comparison to the same period (YoY). Persistently, the Life business retained about the same point of 93.3 percent from its prior position of 93.8 percent in quarter three. In the Non-Life segment, which also took a similar pattern, Motor Insurance continued its lead as the highest retaining portfolio with a retention ratio of 93.5 percent also a point higher than its standing in the prior quarter. Oil & Gas recorded the least at 35.9 percent. The oil and Gas portfolio lamentably remained a challenging angle in the market owing to its nature of enormous capital and professional requirements. Consequently, the retention performance in the current period sustained its prior position when compared to the third quarter as evidenced by the overall Non-Life business ratio of 55.0 percent, slipping from about 56.6 percent held in the prior period.

On the other hand, the insurance claims reported during the fourth quarter stood at N318.2 billion representing 31.2 percent QoQ growth, possible attainment as a result of growing awareness and market expansion as well as consumer confidence. In a similar pattern, the net claims paid were reported at N244.3 billion, growing at 17.9 percent QoQ during the same period, while insights into the Non-life segment show that Motor Insurance led with regards to claims settlement vis-a-vis gross claims reported at 92.3 percent signifying nine points improvement as against its prior position. Fire Insurance was the least at 46.3 percent, the only class below average proportion, while all other portfolios of General Accident Insurance 80.7 percent, Oil & Gas 51.6 percent, Marine & Aviation 74.4 percent, and miscellaneous insurances 86.1 percent recorded a proportion above the average of paid claims against gross claims reported. Life Insurance business on the other hand reported two points less in comparison to the position held in the prior period of 94.6 percent of net claims paid compared to total claims reported during the same period of 2021.

According to the report, “statistics of the insurance market performance for the fourth quarter 2022 revealed consistent growth in terms of premium generation, quality improvements in essential indicators including claims settlement and profitability. It is obvious that the market could be ruled as sound and stable whilst, the stance of the market deepening remains optimistic in spite of operational and macro-economic challenges”.

The growth can aptly be attributed to the deft regulatory style of the National Insurance Commission, which as part of its strategic objective to drive innovation of products and services, and ensure operators are professional in the conduct of their businesses in line with best practices, recently issued three important guidelines. These are Insurance Regulatory Sandbox Operational Guidelines; Market Conduct Guidelines for Takaful &Retakaful Insurance Operators, and Enterprise Risk Management Framework for Takaful and Retakaful Operators in Nigeria, which the Commission expects all operators to ensure compliance for the benefit of all stakeholders.

These are very important regulations formulated by the NAICOM to enhance Nigeria’s Insurance sector. For example, the guidelines on Enterprise Risk Management and Internal Control Framework for Takaful and Retakaful Operators in Nigeria are intended to establish minimum Risk Management Standards for Takaful Insurance Operators (TIOs) in Nigeria. This guideline spells out how the management of risks inherent in the TIO shall be implemented as a TIO is exposed to risks that may affect the ability to achieve its objectives or even its continuing existence.

The Guideline has been designed to articulate principles that may be applied to a variety of circumstances and does not prescribe specific quantitative standards due to the practical reasons of differences in the environments in which different TIOs Operate, as well as differences in their Operational Frameworks. This means that a detailed prescription that might be calibrated to suit one entity would not necessarily be suitable for others.


The principles and recommendations set forth in the Guideline are intended to achieve certain main objectives, which are, to help understand the risks to which a Takaful Undertaking is exposed; to provide minimum standards for the development of a Risk; Management Framework for ease of management of the Takaful; Undertaking and Supervision by its governing bodies and supervisory; authorities, and to help create a safe and prudent environment for the growth, sustainability, and development of the Takaful industry.

According to the Commission, “this Guideline is applicable to all Takaful undertaking, and reference to Takaful Insurance Undertakings also refers to Retakaful Undertakings”.

The Enterprise Risk Management (ERM) Framework general requirements stipulate that all Takaful Insurance Undertaking shall establish and maintain a sound ERM Framework to support the adequacy of its solvency and comply with all relevant Sharī`ah rules and principles. It added that the framework shall be comprehensive in nature, dealing with all reasonably foreseeable and relevant material risks of the funds making up the Takaful Undertaking, and shall be formalised through a set of policies, consistently applied, the TIO’s approach to determining the appetite for risk, its process for managing risks and its Governance related to risk.

NAICOM said in the guidelines that a “TIO shall reflect these policies in Operational processes across the Takaful Undertaking through design and implementation of controls, effective risk reporting, and systematic assessment of control, compliance, and adherence to policy. The TIO shall review regularly the framework and update where necessary.”

Insurance majorly revolves around risk, an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium. Due to the inherent risk enveloped in the sector, the NAICOM went a step further to provide guidance notes on the ERM framework guidelines for Takaful and Retakaful, stating in detail, the risk management policies and strategies.

The regulator in its guidelines unambiguously states: “A TIO shall clearly document its Risk Management Policies and Strategies within a Risk Management Framework that is appropriate to the nature and scale of its activities, including the specificities of the TIO’s Operating model and its Sharī`ah obligations. Policies and Strategies shall be developed in a manner consistent with the Risk Management Framework, to provide clear guidance to the personnel within the Organisation as to the approach to be adopted towards business risks. These policies shall be reviewed on a regular basis by the TIO”.

In addition, a TIO’s Risk Management Policies and Strategies shall include a description of its Policies towards Risk Retention, Risk Management Strategies including Retakāful, diversification/specialisation, and asset–liability management, and NAICOM stressed that a TIO’s Risk Management Policy shall also describe how its Risk Management activity is linked with its management of capital (both external Regulatory capital requirements and internal assessment of its economic capital needs).

The determination of risk appetite, as stated in the guideline, is a key aspect of a TIO’s risk management policies and strategies. “This concerns the risks that the TIO is willing to place on the funds (PRF, PIF, and SHF) that it manages. Those stakeholders, their objectives, and their appetites differ by fund. Hence the amount of risk that the TIO is willing to take on in respect of the SHF (e.g. Expense Risks, Fiduciary Risks, and Risks associated with the investments in the SHF) will have a different basis from the amount of risk that it is willing to assume on behalf of the participants in the PRF or PIF.”

Highlighting other strands of the regulation, the NAICOM pointed out that “The TIO shall document its risk appetite clearly as part of the Risk Management Framework. The risk appetite shall be a statement of direction, specifying the level of risk exposures that the Organisation is willing to take on, before and after mitigants. The TIO shall focus its resources on minimising its risks, and strategy in the event that these risk exposures materialise.

TIOs shall set their own quantitative limits for each significant quantifiable risk. The risk appetite statement shall be clear, precise and easily understood by the reader of the document, and it shall be communicated to all personnel within the Organisation”.

An effective risk appetite statement, the NAICOM went further to state, shall consider the existing risk profile, capacity, and willingness to assume each risk in respect of each segregated part of the TU, as well as the Organisation’s attitude towards risks. The statement shall be subject to appropriate levels of review and be approved by the Board, and there shall be a mechanism by which the risk appetite is monitored regularly to reflect changes in the risk exposures of the TU and whenever the TIO becomes aware of emerging new risks or changes to existing risks. “The TIO shall regard the statement as a guiding principle for Operation of the TU, not simply as a matter of regulatory compliance, and shall be able to demonstrate to its supervisor that the Risk Management Framework is responsive to the risk appetite statement”, it empasised.

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