The objective of the Financial System Strategy 2020 (FSS 2020) initiative launched by the Nigerian government is to reform the financial system in Nigeria in order to make the country the financial hub of Africa by the year 2020. A number of documents prepared for the 2007 conference on the implementation of the FSS 2020 pointed out that the insurance sector is the "weakest link" in the Nigerian financial system. Inadequate supervision and regulation, a negative image of the insurance sector, low awareness of the public, poor financial reporting, and weak management and technology were identified as the major challenges facing the industry. Y. Soladoye, in his presentation at the conference, outlined the main strategic objectives of the reforms in the insurance sector and pointed out the initiatives with a defined time frame designed to implement the objectives. The authorities plan to revise existing insurance laws in order to bring them in line with the "internationally recognized legal system" by 2010; introduce International Accounting Standards, best practices in corporate governance, and stringent solvency rules; and strengthen protection of policy holders, along with other measures. However, there is no information publicly available as to Nigeria's compliance with the Insurance Core Principles promulgated by the International Association of Insurance Supervisors.

General Overview

The Nigerian government has launched the Financial System Strategy 2020 (FSS 2020) initiative to reform its financial sector and make Nigeria the financial hub of Africa by the year 2020. The FSS 2020 involves significant reforms of the major sub-sectors of the financial system: the banking sector, capital markets, insurance, and pensions. In a 2007 speech, Remi Babalola, the Minister of State for Finance, announced that the Nigerian insurance industry faces many serious challenges. He pointed out that, in addition to inadequate supervision and regulation, the sector is plagued by issues of negative image, low awareness of the public, poor financial reporting, and weak management and technology.

Y. Soladoye, in his presentation at the June 2007 Conference on the FSS 2020, outlined the main strategic objectives of the reforms in the insurance sector which are as follows: (1) become the safest insurance market in Africa; (2) obtain a strong positive image of the insurance sector: (3) become the fastest growing market in Africa; (4) make the Nigerian insurance market the first choice in Africa; and (5) build a single West Africa insurance market. Further, Soladoye discussed the main initiatives with a defined time frame for implementation. These initiatives include, but are not limited to, the revision of existing insurance laws in order to bring them in line with internationally recognized legal standards by 2010; the introduction of International Accounting Standards, best practices in corporate governance, and stringent solvency rules; and the strengthening protection of policy holders.

Soladoye noted that the reform of Nigeria's insurance industry started in 2005 with the announcement of new capitalization requirements for insurance companies. This led to the consolidation of the industry and 71 companies were recertified in February 2007. These recertified entities were verified by a Technical Committee (comprising technocrats, representatives from the insurance industry and the NAICOM commissioner) set up for the verification process and to advise on the reform of the National Commission of Insurance (NAICOM) - the Nigerian insurance regulator. In his 2007 speech, Finance Minister Babalola noted that the release of the report by the Technical Committee was a "defining" moment for the sector, stating that it would form the basis for further reforms in line with FSS 2020. The minister announced: "At the end of the day, we are going to have an Insurance sector that will actually have its own share in the FSS 2020."

The main laws and guidelines governing the insurance sector include the National Insurance Commission (NACOM) Act of 1997, the Insurance Act of 2003, and the Consolidation and Recapitalization Guidelines of 2005. NAICOM was established in 1997 by the NAICOM Act of 1997, thus replacing the Nigerian Insurance Supervisory Board (NISB). The NAICOM reports to the Federal Ministry of Finance (FMF) and its main functions include supervision, regulation and control of insurance business in Nigeria. According to the FMF website, NAICOM sets standards for the conduct of insurance business, protection of policy-holders, approves rates of insurance premiums and also advises the federal government on all insurance related matters. NAICOM is also responsible for ensuring adequate capitalization in the industry.

According to Soladoye, the Nigerian insurance industry's contribution to the GDP is a mere .32 per cent. Furthermore, the annual gross premium income in 2005 was N76.32 billion ($587 million), and the industry is ranked 65th worldwide and 6th in Africa. As of 2007, there were 69 insurance and 2 reinsurance companies in Nigeria. Furthermore, Soladoye noted that FSS 2020 aims to make Nigeria the insurance market of "first choice" in Africa and attain the 15th position internationally in terms of premium generation by the year 2020. According to the International Association of Insurance Supervisors (IAIS) website, Nigeria is not a member of the IAIS.

The Principles

ICP 1 Conditions for effective insurance supervision

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 2 Supervisory objectives

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 3 Supervisory authority

II

There is insufficient information publicly available as to Nigeria's compliance with this principle. According to the FMF website, NAICOM is responsible for the administration, supervision, regulation and control of the business of insurance in Nigeria.

ICP 4 Supervisory process

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 5 Supervisory cooperation and information sharing

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 6 Licensing

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 7 Suitability of persons

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 8 Changes in control and portfolio transfers

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 9 Corporate governance

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 10 Internal control

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 11 Market analysis

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 12 Reporting to supervisors and off-site monitoring

II

There is insufficient information publicly available as to Nigeria's compliance with this principle. According to the World Bank's 2004 report, NAICOM regulates financial reporting practices of insurance companies under the Nigerian Insurance Act of 2003. The report further adds that audited financial statements are submitted within 6 months of the year end date to NAICOM and also published in newspapers. However, NAICOM does not have sufficient resources to enforce compliance with reporting requirements, concludes the report.

ICP 13 On-site inspection

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 14 Preventive and corrective measures

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 15 Enforcement or sanctions

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 16 Winding-up & exit from the market

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 17 Group-wide supervision

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 18 Risk assessment and management

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 19 Insurance activity

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 20 Liabilities

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 21 Investments

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 22 Derivatives and similar commitments

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 23 Capital adequacy and solvency

II

There is insufficient information publicly available as to Nigeria's compliance with this principle. As per the FMF website, the Nigerian government raised the capitalization thresholds of all insurance companies in 2005, and companies were recertified based on the new requirements in 2007.

ICP 24 Intermediaries

II

There is insufficient information publicly available as to Nigeria's compliance with this principle. According to the Narasawa state website, the insurance industry comprises life, non-life, and reinsurance firms. These firms mobilize long-term funds and act as financial intermediaries.

ICP 25 Consumer protection

II

There is insufficient information publicly available as to Nigeria's compliance with this principle. According to the FMF website, NAICOM is responsible for the protection of policy holders.

ICP 26 Information, disclosure & transparency towards the market

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 27 Fraud

II

There is insufficient information publicly available as to Nigeria's compliance with this principle.

ICP 28 Anti-money laundering/ Combating the Financing of Terrorism

II

There is insufficient information publicly available as to Nigeria's compliance with this principle. According to the 2007 U.S. Department of State (DoS) report, the Financial Action Task Force (FATF) placed Nigeria on its list of non-cooperative countries and territories in combating money laundering in June 2001. The DoS report notes, however, that the FATF conducted an evaluation of the reforms in the Nigerian anti-money laundering regime in May 2006 and recognized the progress Nigeria had made in implementing AML policies, namely the establishment of a financial intelligence unit and the progress on money laundering investigations, prosecution and convictions. As a result, the FATF removed Nigeria from the non-cooperative list in June 2006, but enhanced monitoring of the country's compliance efforts. The FATF announced that the formal monitoring process ended in June 2007.