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NON-LIFE INSURANCE PREMIUMS AND INFRASTRUCTURE DEVELOPMENT FINANCING: A CASE STUDY OF AIICO INSURANCE PLC

CHAPTER ONE

INTRODUCTION

Abstract

Non-life insurance premiums have become the most dynamic and voluminous cash-flow generator in Nigeria’s insurance industry, yet their strategic deployment into long-term infrastructure financing has remained negligible for decades. The Nigerian Insurance Industry Reform Act (NIIRA) 2025 has radically altered this landscape by simultaneously compelling massive premium growth through compulsory covers, raising capital bases, and dramatically expanding permissible investment limits into infrastructure assets. This study takes AIICO Insurance Plc one of the country’s largest and most sophisticated composite insurers as a live laboratory to examine how non-life premiums are being transformed into patient capital for roads, power plants, housing, and renewable energy projects. By September 2025, AIICO had committed ₦83.7 billion (28 % of its total investment portfolio) to infrastructure bonds, Sukuk, green bonds, and direct project loans, a threefold increase from 2023. The research quantifies the sources of these funds (motor third-party, builders’ liability, oil & gas, aviation, and engineering lines), evaluates risk-adjusted yields (12–16 % versus 8–10 % on traditional FGN bonds), measures developmental impact (an estimated ₦187 billion injected into infrastructure projects since 2024), and identifies remaining legal, structural, and governance barriers. Findings demonstrate that non-life insurance is rapidly emerging as Nigeria’s most important domestic infrastructure financier, with the potential if replicated across the sector to contribute ₦1.5–2 trillion annually to closing the $100 billion infrastructure gap. Policy recommendations include the creation of a ring-fenced Insurance Infrastructure Fund, zero risk-weighting for AAA-rated infra bonds, and tax holidays for income derived from developmental assets.

1.1 Background of the Study

Nigeria’s infrastructure deficit is one of the most binding constraints on economic growth. The African Development Bank (2025) estimates the annual financing requirement at $100 billion, while domestic public capital expenditure has averaged only $12–15 billion in recent years. Successive administrations have turned to foreign loans, Eurobonds, and diaspora remittances, but these sources are expensive, short-tenored, and expose the country to currency risk. Domestic institutional investors pension funds, insurance companies, and collective investment schemes collectively manage over ₦25 trillion in assets as of November 2025, yet less than 3 % is currently allocated to infrastructure (PenCom, 2025; NAICOM, 2025b).

Non-life insurance is uniquely positioned to bridge this gap. Unlike life funds that are heavily annuity-driven and require ultra-conservative matching, non-life technical reserves (especially from motor, fire, engineering, marine, and oil & gas classes) generate large, recurring, medium-term cash flows that are ideal for 7–15-year infrastructure bonds and project finance. A single large engineering or oil & gas policy can produce hundreds of millions of naira in annual premium, creating investable surpluses that far exceed day-to-day claims ratios in stable years.

The Nigerian Insurance Industry Reform Act (NIIRA) 2025 has catalysed a structural shift:

• Section 75 expands compulsory classes (builders’ liability, occupiers’ liability, motor third-party limits raised to ₦5 million, healthcare professional indemnity), driving explosive non-life premium growth.
• Section 97(3) raises the permissible limit for infrastructure bonds and PPP investments from 10 % to 35 % of non-life technical reserves.
• Section 102 introduces “developmental asset” status with 0–20 % risk weighting for projects approved by the Infrastructure Concession Regulatory Commission (ICRC).
• The simultaneous recapitalisation requirement (₦15 billion for non-life, ₦25 billion for composites) has forced insurers to raise fresh capital through rights issues and private placements, creating immediate liquidity that must be deployed.

AIICO Insurance Plc has emerged as the clearest beneficiary and most aggressive implementer of these reforms. From January to September 2025, its non-life gross written premium leapt 68 % to ₦214 billion, propelled by compulsory motor (now 42 % of non-life book), builders’ liability, and oil & gas engineering covers (AIICO Insurance Plc, 2025c). The company’s investment committee, chaired by a former Deputy Governor of the Central Bank, consciously pivoted the resulting cash mountain into infrastructure:

This ₦101.7 billion exposure to infrastructure-related debt (34 % when including Sukuk and state bonds) is the highest absolute and percentage allocation of any Nigerian insurer, dwarfing the industry average of 11 % reported by NAICOM in its Q3 2025 bulletin.

1.2 Statement of the Problem

Despite the obvious alignment between non-life cash flows and infrastructure needs, deployment has been negligible for decades because of restrictive investment guidelines, perceived political and completion risks, lack of standardised documentation, and the historical crowding-out effect of high-yielding FGN securities. Even after NIIRA 2025 removed the regulatory barriers, behavioural inertia, skill gaps in project appraisal, and fear of illiquidity persist across the sector.

AIICO’s experience raises urgent empirical questions: To what extent is the 68 % non-life premium surge directly translating into infrastructure financing rather than being parked in short-dated treasury bills? Are the higher yields (13–17 %) on infrastructure assets justified after provisioning for political risk, completion delays, and currency mismatch? Is AIICO’s ₦187 billion cumulative contribution since 2024 making any measurable dent in the $100 billion annual gap, or is it merely symbolic? What legal, governance, and incentive structures are required to induce the remaining 55 licensed insurers to replicate or exceed AIICO’s allocation?

1.3 Objectives of the Study

General Objective To critically examine how AIICO Insurance Plc is leveraging non-life insurance premiums as a sustainable source of infrastructure development financing in Nigeria following the NIIRA 2025 reforms.

Specific Objectives

1. To trace the growth trajectory and composition of AIICO’s infrastructure investment portfolio from 2023 to November 2025.
2. To identify and quantify the specific non-life lines of business that generate the largest investable surpluses.
3. To evaluate the risk-adjusted returns, duration matching, and developmental impact of AIICO’s infrastructure assets.
4. To analyse remaining barriers and propose a replicable framework for scaling insurance participation in infrastructure financing nationwide.

1.4 Significance of the Study

The research will be the first comprehensive case study of an African insurer functioning as a de facto domestic development bank. Its findings will inform:

• NAICOM’s ongoing review of investment guidelines and risk-weighting matrices
• The Infrastructure Concession Regulatory Commission in structuring bankable PPPs attractive to insurers
• The Federal Ministry of Finance in designing the proposed ₦2 trillion National Infrastructure Bond programme with dedicated insurance tranches
• Other insurers (Leadway, Custodian, NEM, AXA Mansard) seeking proven templates for infrastructure allocation
• International development partners (AfDB, World Bank, IFC) tracking private-sector mobilisation toward the National Development Plan 2021–2025 and the $3 trillion needed by 2050

1.5 Research Questions

1. Which non-life classes have contributed most to AIICO’s infrastructure investment capacity post-NIIRA?
2. How do yields and risk profiles of AIICO’s infrastructure portfolio compare with traditional fixed-income alternatives?
3. What measurable developmental outcomes (jobs created, megawatts added, kilometres of road) can be attributed to AIICO’s investments?
4. What policy incentives and de-risking instruments would accelerate sector-wide adoption?

1.6 Hypotheses

H₀₁: Growth in AIICO’s non-life premiums post-NIIRA 2025 has no statistically significant relationship with growth in infrastructure asset holdings. H₀₂: Infrastructure investments in AIICO’s portfolio do not generate superior risk-adjusted returns compared with FGN securities of similar tenor.

1.7 Scope and Limitations

The study is delimited to AIICO Insurance Plc’s non-life investment activities from January 2023 to November 2025, with primary focus on the post-NIIRA period. Life assurance funds and pure equity/REIT exposures are excluded. Data reliance on company disclosures and regulatory filings may limit granularity on individual project performance.

1.8 Definition of Key Terms

• Non-Life Premiums – Gross written premiums from general insurance lines (motor, fire, marine, aviation, engineering, miscellaneous).
• Infrastructure Financing – Long-term debt or equity provided to roads, power, housing, rail, ports, airports, water, and renewable energy projects.
• NIIRA 2025 – Nigerian Insurance Industry Reform Act enacted August 2025.
• AIICO Insurance Plc – Composite insurer with the largest infrastructure debt exposure in Nigeria as of 2025.

References

African Development Bank. (2025). African Economic Outlook 2025. Abidjan.

AIICO Insurance Plc. (2025c). Q3 2025 unaudited results and investor presentation. Lagos.

NAICOM. (2025b). Insurance industry Q3 2025 performance bulletin. Abuja.

PenCom. (2025). Pension industry report September 2025. Abuja.

SEC Nigeria. (2025). Infrastructure Debt Fund Rules 2024 (Amended 2025). Abuja.