The effect of Regulatory Pressure on Risk-Weighted Capital Adequacy of Insurers in Nigeria

Abstract

The growing concern for insurance soundness and occasional solvency regulations deserves empirical investigation, as the insurance industry in Nigeria appears to be illiquid to undertake high risk underwriting. This paper examines the effect of the three levels of regulatory pressures of intervention, control and safety on the risk weighted capital adequacy (RWCA) of insurance
companies in Nigeria along with such influencers of RWCA as insurance equity multiplier, insurance deposit structure, and size of insurance company. Secondary data were used while regression statistics was used in analyzing the data. Results show that, RWCAR is significantly and negatively sensitive to the intervention level of regulatory pressure while it is significantly and positively sensitive to each of control and safety levels of regulatory pressure. These findings provide important insight for managers and regulators of insurance companies to understand the role and the effect of the identified regulatory levels on the volume of capital considered to be adequate for operational effectiveness, efficiency and in the attainment of adequate solvency margin for indemnification of the insured.