Nigeria’s National Insurance Commission (NAICOM) issued circular NAICOM/I&R/CIR/69/2025 on August 19, 2025, prohibiting coinsurance arrangements between Takaful operators and conventional insurance companies, effective January 1, 2026. The directive — which ends a longstanding risk-sharing mechanism in Africa’s largest insurance market — forces all licensed operators to choose between Islamic and conventional pools, with only one narrow exemption preserved for retakaful cessions pending the development of domestic Islamic reinsurance infrastructure.
What the Circular Bans — and the One Exception NAICOM Left Open
The circular is unambiguous: no operational coinsurance arrangement between a licensed Takaful operator and a conventional insurance company is permitted from January 1, 2026. NAICOM’s stated rationale encompasses three concerns: preserving the Shari’ah integrity of Takaful funds, maintaining financial soundness by preventing cross-pool loss contamination, and reducing systemic risk from entanglement between Islamic and conventional underwriting books. The one exemption — retakaful cessions to conventional reinsurers — was preserved explicitly because Nigeria currently lacks sufficient domestic Islamic reinsurance capacity. NAICOM framed this as a temporary measure pending the development of Retakaful infrastructure, effectively acknowledging that it is forcing market separation before the structural prerequisites exist.
A Market Where the Separation Arrives Before the Infrastructure
Nigeria’s insurance sector recorded gross written premiums of N1.562 trillion in 2024, a 56% year-on-year increase from N1.003 trillion in 2023, according to the NAICOM Q4 2024 Market Bulletin. Total sector assets reached N3.9 trillion, a 46% increase from the prior year. Despite this growth, insurance penetration remains below 2% of GDP — and Takaful was introduced specifically as an inclusion mechanism to reach underserved Muslim-majority and ethically-motivated segments of that market. Nigeria has four licensed Takaful operators, including two composite operators approved in 2019. These operators have historically relied on coinsurance pools with conventional carriers to manage large commercial and infrastructure exposures that exceed standalone capacity. Without that mechanism, they must either absorb disproportionate retention risk or forfeit large-ticket business to conventional competitors. The Retakaful capacity gap that constrains GCC Takaful operators is even more acute in Sub-Saharan Africa, where the domestic Islamic reinsurance market is effectively non-existent.
The Retakaful Paradox NAICOM Created
The circular’s internal logic contains a structural contradiction: NAICOM bans coinsurance between Takaful and conventional pools on grounds of Shari’ah integrity, yet preserves cession to conventional reinsurers — effectively routing Islamic insurance risk through non-Islamic balance sheets at the reinsurance layer. Experts at the Islamic Insurance Forum of Professionals (IIFP) have publicly faulted the policy, warning that it stifles competition, reduces market access for large risks, and undermines financial inclusion without delivering a commensurate improvement in Shari’ah compliance. The comparison with Egypt’s FRA governance framework for Takaful is instructive: Cairo opted for governance harmonization rather than pool separation, allowing Takaful operators to participate in conventional coinsurance with enhanced disclosure requirements. In contrast, Nigeria has adopted the most restrictive position in sub-Saharan Africa. International reinsurers — including Munich Re, which has dedicated Retakaful operations — stand to benefit from the exemption, capturing cession flows that domestic Retakaful operators cannot yet absorb.
What Operators, Brokers, and Reinsurers Must Do Now
For Takaful operators, the immediate pressure is capital adequacy on large commercial risks. Under the Nigeria Insurance Industry Reform Act (NIIRA 2025), minimum capital for composite operators was set at N5 billion — a threshold already challenging for the sector’s smaller participants. Without coinsurance pools to distribute exposure, operators face a choice between refusing large-ticket risks, retaining disproportionate net exposure, or accelerating partnership talks with international Retakaful providers. For conventional insurers, the separation eliminates one risk-distribution channel and may reduce placement efficiency on mixed portfolios where Takaful-eligible risks were previously co-syndicated. Brokers face the sharpest operational disruption: placement workflows designed around mixed coinsurance pools must be rebuilt to navigate separate regulatory environments, separate compliance approvals, and separate commission structures. Intermediaries with dedicated Takaful practice capabilities will capture margin from this complexity; generalist brokers will struggle with dual-track placements.
