By Joan Chioma Obinagwam
When President Bola Ahmed Tinubu signed the Nigerian Insurance Industry Reform Act (NIIRA 2025), it was heralded as a landmark moment. Regulators at the National Insurance Commission (NAICOM) described it as “a dawn of a new era,” positioning Nigeria’s insurance framework to compete globally.
The law, drafted by the Presidential Committee on Fiscal Policy and Tax Reforms chaired by Taiwo Oyedele, incorporates elements of international tax rules to ensure multinational corporations contribute appropriately. It includes provisions from the OECD’s Pillar Two framework, which establishes a global minimum tax rate of 15 percent for large firms.
Yet what was designed to curb tax avoidance by wealthy corporations is now placing significant strain on Nigerian insurers, many of which are still struggling to meet NAICOM’s new capital requirements ahead of the July 2026 deadline.
Global tax shift
This is not a minor adjustment. The new rules compel insurance executives to treat taxation as a core operational risk, alongside natural disasters or major claims. Under the OECD’s Pillar Two framework, multinational corporations earning more than €750 million annually must pay at least 15 percent tax in every jurisdiction where they operate. If local rates fall below that threshold, companies must pay the difference.
For insurers, the impact is significant. Much of their income derives from investments and reserves earmarked for future claims. The new rules scrutinize these sources closely, raising costs and reshaping financial planning strategies.
Nigeria’s adaptation
Nigeria’s Tax Act 2025 introduces its own version of minimum tax rules. It imposes levies on foreign firms earning insurance premiums from Nigeria and ties reinsurance deductions to capital requirements set by NAICOM.
Tax expert Tayo Ogungbenro of KPMG Nigeria explained: “The law borrows from global standards but adapts them to Nigeria. It ensures taxes reflect real business activity here. For companies operating across borders, however, it changes revenue models very quickly.”
Local impact
For decades, Nigeria’s insurance sector wrestled with low penetration and public mistrust. Today, the challenge has shifted from consumer confidence to financial compliance. The “silent predator” is no longer weak demand but the complex machinery of global tax alignment.
As the world embraces the OECD’s Pillar Two framework, Nigeria has positioned itself as an eager participant. The Nigeria Tax Act 2025 and Insurance Reform Act 2025 were celebrated as steps toward transparency and modernization. Yet for local insurers and reinsurers, alignment feels less like progress and more like a heavy burden on resilience.
Global squeeze
The OECD’s Pillar Two initiative aims to end the “race to the bottom,” where countries slash corporate taxes to attract capital. While the intent is laudable, its implementation poses challenges for Nigerian insurers with regional ambitions.
Under Nigeria’s Tax Act (NTA) 2025, if a foreign subsidiary of a Nigerian insurer pays less than the 15 percent Effective Tax Rate (ETR), the parent company must pay a “top-up tax” in Nigeria.
“We are essentially being penalized for our growth,” says Chidi Uzoma, a senior tax consultant and industry analyst. “The administrative burden of calculating these taxes across jurisdictions is immense. For many Nigerian firms, the cost of compliance—hiring international tax experts and upgrading IFRS 17-compliant systems—is eroding the very capital they need to cover risks.”
Tax burden
Global tax rules are tightening, but local legislation is adding further strain. Section 61 of the Nigeria Tax Act 2025 redefines how insurance profits are calculated, often pulling investment income into the tax net regardless of its origin.
The timing is particularly difficult. The industry is already grappling with the Insurance Reform Act 2025, which mandates a significant increase in statutory reserves and introduces a 0.25 percent levy on gross premiums for the Insurance Policyholder Protection Fund.
“The sector is being hit from both sides,” notes a senior official at NAICOM (National Insurance Commission), speaking on condition of anonymity. “We want a solvent industry, but you cannot tax a sector into growth. When global tax alignment raises the Effective Tax Rate, and local levies increase the cost of doing business, the ‘cost of risk’ inevitably rises. Ultimately, the Nigerian consumer pays more for a policy—or worse, remains uninsured.”
Human toll
Chinyere Obi runs a small logistics company in Lagos. For years, she has relied on affordable insurance to protect her trucks from accidents and theft. That coverage was her safety net. It let her take on bigger jobs, grow her business, and sleep better at night knowing one bad event would not wipe her out.
But this year, when she met her insurance agent to renew her policy, the news hit hard. The agent said, “Your premiums will rise sharply. The new tax laws leave us no choice.”
Chinyere’s story is not unique. It shows what is happening across the country. The new tax rules make things harder for insurers. They now face higher costs from extra taxes and rules, including how taxes apply to their gross premium income (the total money coming in from premiums before paying out claims). This means insurers sometimes pay tax on money they have set aside for future claims, not just on actual profits. Those extra costs squeeze their profits, so they have to charge customers like Chinyere more for the same coverage.
For Chinyere, insurance is not a luxury. It is survival. Without it, one truck accident could shut down her business and leave her workers without jobs. But with premiums going up, she is left wondering if she can even afford to renew. If she drops the cover to save money, she risks everything she has built. Her dilemma is the same for many small business owners, farmers, families, and drivers who depend on insurance to protect what matters most.
Risk strategies
Insurance teams are racing to adjust to new fiscal realities. Tax risks are now built into strategic planning: firms stress-test scenarios where taxes rise, restructure reinsurance deals to avoid extra costs, and factor taxation into investment decisions.
“It adds new kinds of uncertainty to an already tricky job,” says Ngozi Asim-Ita, a tax expert at KPMG. Globally, companies are developing specialized tools to track tax exposure and reassess major deals. In Nigeria, these pressures come alongside stricter capital requirements: life insurers must hold ₦10 billion, non-life ₦15 billion, composite firms ₦25 billion, and reinsurers ₦35 billion by July 30, 2026.
Risk pressure
The first casualty of fiscal tightening is risk management. In reinsurance, risk is a tradable commodity that requires liquidity. When profits are eroded by Nigeria’s 30 percent corporate tax rate (effectively 34 percent when the new 4 percent Development Levy is included), reinsurers have less “dry powder” to absorb shocks.
KPMG Nigeria recently flagged a critical gap in the law: the requirement to deduct Withholding Tax (WHT) on insurance premiums paid to non-residents.
The intent is to protect local insurers and generate revenue. The reality is that it makes international retrocession, or reinsurance for reinsurers, more expensive. Nigeria’s domestic capacity is not yet sufficient to handle “mega-risks” in sectors such as oil and gas. By taxing the exit of premiums, the government is inadvertently limiting the ability of local firms to spread risk globally.
Rising costs
The challenges are mounting. Profits are already thin due to high inflation, currency volatility, and low insurance penetration. Added tax paperwork and potential extra payments worsen the strain. Smaller firms without foreign backing are most vulnerable, with many facing consolidation or closure.
Insurance coverage in Nigeria remains low, at just 0.4 to 0.5 percent of GDP, despite total premiums surpassing ₦1 trillion. The new tax law increases the cost of reinsurance by taxing payments sent abroad. Since Nigerian insurers often rely on foreign partners to cover large risks, these costs are passed on to customers through higher premiums.
For many Nigerians, insurance is seen as a luxury or unnecessary expense. With economic hardship, limited awareness, and rising prices, fewer people may sign up. The NTA also demands more detailed reporting from agents and brokers, diverting resources away from outreach to underserved groups such as small farmers, shop owners, and families seeking basic health or life cover.
Reform dilemma
While reforms championed by Taiwo Oyedele and President Bola Tinubu aim to make taxation fairer and boost government revenue, they risk slowing insurance growth. The target is to raise coverage to 3 percent of GDP, but higher costs could stall progress.
Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, has emphasized the principle of “tax the fruit, not the seed.” For Nigeria’s insurance sector to thrive, policymakers must ensure that capital, the seed, is not consumed by rules intended to protect the harvest.
Olusegun Omosehin, Commissioner for Insurance at NAICOM, recently noted: “Global rules help make things stable and trusted, but we cannot let them stop new ideas. NAICOM wants to provide support such as digital tools and training so companies can comply and still grow.”
Next steps
Experts believe Nigerian insurers can turn these challenges into opportunities by taking practical measures. The first priority is to assess the immediate impact of the new rules. Companies should examine their structures, test tax costs under different scenarios, and consult with experts to take advantage of the OECD’s simplified options.
Improving technology and data systems is equally critical. The regulations demand clear and reliable records, so insurers must invest in automated platforms that track compliance seamlessly. Alongside this, firms should review their reinsurance arrangements, choosing partners in jurisdictions that already enforce minimum taxes. This approach helps reduce additional costs while aligning with capital requirements.
Another important step is building cross-functional teams that bring together tax, risk, finance, and compliance specialists. By testing plans regularly, these teams can identify problems early and adapt quickly. Insurers should also make full use of the relief measures available, while joining industry groups to advocate for training, grants, and targeted breaks on reinsurance taxes to keep premiums affordable.
Furthermore, vigilance is essential. Global rules continue to evolve, and Nigerian insurers must remain agile, ready to adjust strategies as updates emerge. By combining proactive planning, technological investment, and collective advocacy, the sector can transform regulatory challenges into a foundation for long-term resilience.
Leave a comment