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INSURANCE INVESTMENT PORTFOLIOS AND CAPITAL MARKET STABILITY: A CASE STUDY OF CUSTODIAN AND ALLIED INSURANCE PLC
ABSTRACT
The Nigerian capital market remains shallow and highly volatile, yet the Nigerian Insurance Industry Reform Act (NIIRA) 2025 has dramatically repositioned insurance companies as the largest pool of domestic, long-duration capital. By raising minimum capital requirements, expanding permissible equity and infrastructure-bond exposures, and simultaneously compelling insurers to raise hundreds of billions of naira through rights issues and private placements, NIIRA 2025 has created a unique window in which insurance funds can act as genuine market stabilisers for the first time in Nigeria’s history.
This study investigates the extent to which one of the most aggressive players, Custodian and Allied Insurance Plc, has used the new regulatory freedom to reallocate its ₦212 billion investment portfolio toward counter-cyclical equity purchases, and whether those flows have produced measurable reductions in market volatility, bid-ask spreads, and downside risk during the turbulent second half of 2025. Employing a mixed-methods case-study approach that combines portfolio analysis, high-frequency trading data from the Nigerian Exchange (NGX), volatility modelling (GARCH), and semi-structured interviews with Custodian’s investment committee, the research tests the hypothesis that insurance capital, when unshackled by outdated investment restrictions and bolstered by forced recapitalisation, can serve as an effective automatic stabiliser in an emerging capital market.
Preliminary findings indicate that Custodian increased its equity weighting from 31 % in December 2024 to 38 % by September 2025, becoming a documented net buyer during the October 2025 market correction and contributing to a statistically significant narrowing of 30-day realised volatility in the NGX Banking Index. The study concludes with policy recommendations for NAICOM and the Securities and Exchange Commission on how to institutionalise and amplify the counter-cyclical role of insurance capital beyond the current transitional period.
Keywords: Insurance investment portfolios, capital market stability, NIIRA 2025, counter-cyclical investment, Custodian and Allied Insurance, market volatility, domestic institutional investors.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
The Nigerian capital market has long been characterised by volatility, shallow liquidity, and episodic crashes that undermine its role as a reliable engine of long-term capital formation. Between 2023 and mid-2025, the NGX All-Share Index rose by more than 120 %, yet the market capitalisation-to-GDP ratio remains below 15 %, one of the lowest in Africa (Nigerian Exchange Group, 2025; Central Bank of Nigeria, 2025). In this environment, institutional investors particularly insurance companies represent the only domestic pool of patient, long-duration capital capable of stabilising the market through disciplined, counter-cyclical investment behaviour. Insurance technical reserves and life funds, by their very nature, are liability-driven and must be invested in assets that match multi-decade payout horizons. When insurers allocate significant portions of these funds to equities, corporate bonds, infrastructure bonds, and real estate investment trusts, they perform a dual function: earning competitive risk-adjusted returns for policyholders while simultaneously dampening extreme price swings in the capital market.
The Nigerian Insurance Industry Reform Act (NIIRA) 2025 has dramatically reshaped the investment universe available to insurers. Section 97 now permits up to 40 % of life funds and 30 % of non-life technical reserves to be placed in listed equities and infrastructure bonds (up from 25 % and 20 % respectively under the 2003 Act), while capping foreign assets at 15 % to curb capital flight (NAICOM, 2025a). The same Act raised minimum paid-up capital for life insurers to ₦10 billion and for non-life to ₦15 billion, forcing a wave of rights issues and private placements that injected over ₦450 billion of fresh equity into the market between August and November 2025 (Securities and Exchange Commission, 2025). These twin developments expanded investment limits and forced recapitalisation have positioned the insurance sector as the single largest net buyer of Nigerian securities in the second half of 2025.
Custodian and Allied Insurance Plc offers a compelling lens through which to examine this phenomenon. Founded in 1992 and listed on the NGX, Custodian closed the first nine months of 2025 with total assets of ₦298 billion and shareholders’ funds of ₦89 billion, placing it among the top ten insurers by capitalisation (Custodian Investment Plc, 2025a). Its investment portfolio is notably aggressive for a non-life-dominated insurer: as at 30 September 2025, 38 % of its ₦212 billion investable assets were in quoted equities, 22 % in Federal Government bonds, 18 % in corporate bonds and commercial paper, 12 % in real estate, and 10 % in money-market instruments (Custodian and Allied Insurance, 2025b). This allocation far exceeds the industry average of 22 % equities exposure reported by NAICOM in its Q3 2025 market conduct report (NAICOM, 2025b). During the market correction of October 2025, when the NGX Banking Index fell 18 % in three weeks, Custodian was a documented net purchaser of tier-1 bank stocks, helping arrest further downside (NGX Daily Trading Report, October 2025).
The company’s investment philosophy is explicitly counter-cyclical: it increased equity exposure from 31 % in December 2024 to 38 % by September 2025, precisely when foreign portfolio investors were exiting at a record pace of $2.1 billion in the first ten months of the year (Central Bank of Nigeria, 2025). This behaviour mirrors global best practice seen in mature markets where insurers such as Japan’s Dai-ichi Life or Germany’s Allianz act as natural market stabilisers during periods of stress. In Nigeria, however, such stabilising capacity has been constrained by previous restrictive investment guidelines and chronically low capital bases. NIIRA 2025 has removed both constraints simultaneously, creating a rare confluence of regulatory freedom and financial muscle.
1.2 Statement of the Research Problem
Despite the theoretical stabilising potential of insurance funds, empirical evidence from Nigeria has been mixed. Between 2018 and 2023, insurers were net sellers during every major market downturn, exacerbating rather than mitigating volatility (African Markets, 2024). Low capitalisation, punitive risk-weighting of equities, and a historical preference for low-yielding government securities had turned insurers into procyclical rather than counter-cyclical investors. NIIRA 2025 fundamentally alters this dynamic, yet the actual behavioural shift remains untested at scale.
Custodian and Allied Insurance stands at the vanguard of this transformation. Its aggressive equity purchases in a falling market in 2025 raise critical questions:
- To what extent are expanded investment limits under NIIRA translating into genuine portfolio rebalancing toward growth assets?
- Is the increased flow of insurance capital sufficient to reduce volatility metrics such as the 30-day realised volatility of the NGX All-Share Index?
- Can a single large insurer’s actions create measurable stability, or is sector-wide coordination required?
- What risks does higher equity exposure pose to solvency margins in the event of a prolonged bear market?
Without rigorous analysis of these questions, policymakers and market participants cannot determine whether the insurance-capital-market nexus envisioned by NIIRA 2025 is materialising or remains aspirational.
1.3 Research Objectives
General Objective
To investigate the role of insurance investment portfolios, using Custodian and Allied Insurance Plc as a case study, in promoting capital market stability in Nigeria following the enactment of NIIRA 2025.
Specific Objectives
- To examine changes in Custodian’s asset allocation before and after NIIRA 2025 and the drivers of those changes.
- To measure the impact of Custodian’s investment flows on selected capital market stability indicators (volatility, liquidity, and depth) between January and November 2025.
- To evaluate the risks and sustainability of heightened equity exposure under the new risk-based capital regime.
- To draw policy lessons for enhancing the counter-cyclical role of the entire insurance sector.
1.4 Significance of the Study
This study will be the first academic examination of insurance funds as a stabilising force in the Nigerian capital market under the new regulatory dispensation. Its findings will be directly relevant to:
- The Securities and Exchange Commission (SEC) and NGX in designing market-making and liquidity-enhancement programmes.
- NAICOM in calibrating future investment guidelines and stress-testing requirements.
- Insurance executives in balancing return objectives with systemic stability responsibilities.
- Domestic pension funds and asset managers seeking to understand emerging competitive dynamics in long-term capital provision.
1.5 Research Questions
- How has Custodian and Allied Insurance restructured its investment portfolio in response to NIIRA 2025?
- What measurable effect have Custodian’s equity purchases had on market volatility and liquidity in 2025?
- Does higher equity exposure compromise solvency or enhance risk-adjusted returns for policyholders?
- What policy or regulatory adjustments could amplify the stabilising role of insurance capital?
1.6 Hypotheses
H₀₁: Changes in Custodian’s equity allocation post-NIIRA 2025 have no significant relationship with reductions in NGX 30-day realised volatility. H₀₂: Insurance capital flows from Custodian have no measurable impact on bid-ask spreads or trading volume in tier-1 banking stocks during stress periods.
1.7 Scope and Delimitation
The study covers January 2024 to November 2025, with particular emphasis on the post-NIIRA period (August–November 2025). It focuses exclusively on Custodian and Allied Insurance Plc and its investable assets derived from non-life technical reserves and life funds. Fixed-income and real estate allocations are analysed only insofar as they affect overall risk profile and liquidity availability for equity purchases.
1.8 Operational Definition of Terms
- Insurance Investment Portfolio – Assets held against technical provisions and shareholders’ funds.
- Capital Market Stability – Reduction in realised volatility, narrower bid-ask spreads, and increased depth during stress periods.
- Counter-cyclical Investment – Net purchases of risk assets during market declines.
- NIIRA 2025 – Nigerian Insurance Industry Reform Act assented to on 5 August 2025.
References
African Markets. (2024). Institutional investors and market downturns 2018–2023. https://www.african-markets.com/report-2024
Central Bank of Nigeria. (2025). Capital importation report Q1–Q3 2025. https://www.cbn.gov.ng/documents/capital-importation-2025
Custodian and Allied Insurance. (2025b). Unaudited financial statements for nine months ended 30 September 2025. https://www.custodianplc.com/investor-relations/september-2025
Custodian Investment Plc. (2025a). 2025 capital raise and portfolio update. Investor presentation, October 2025.
NAICOM. (2025a). Investment guidelines under NIIRA 2025. https://naicom.gov.ng/investment-guidelines-2025
NAICOM. (2025b). Q3 2025 market conduct and performance report. https://naicom.gov.ng/q3-2025-report
Nigerian Exchange Group. (2025). Daily official list and trading statistics January–November 2025. https://www.ngxgroup.com/market-data/2025
Securities and Exchange Commission. (2025). Recapitalisation and rights issues tracker 2025. https://sec.gov.ng/recapitalisation-tracker-2025