🍞 Other People's Money

In a stock market that has returned more than 50% this year, one sector is in the red. The NGX Insurance Index is down 8.65% year-to-date, the only major sectoral index in negative territory. Cornerstone has fallen 65% from its peak; Coronation is off 43%. On the face of the story seems straightforward. Nigeria completed a landmark insurance recapitalisation, and the sector cratered.

Except that is not what the index is telling you.

Of the 22 insurance stocks we track, only eight were positive year-to-date. Thirteen were down. That’s a sign of a sector being sorted. And at the top of the pile sits Custodian Investment, up 67.67% year-to-date, the most capitalised insurer on the exchange, with a market cap of ₦424 billion, or roughly $315 million. Custodian's rally is purely about the quality of its earnings. These earnings, predominantly from investment income and not insurance premiums, are a topic we’ll come back to later in this deep dive. The company's earnings per share climbed from ₦1.83 in 2021 to ₦11.19 in 2025, compounding at around 57% a year, and the stock still trades below the sector's average earnings multiple.

So the real story is that the recapitalisation is separating the businesses compounding real earnings from the ones that were only ever floating on a rising tide. Which raises the question this piece is really about: what makes a well-run insurer such a powerful thing to own in the first place?

The Nigerian Insurance Industry Reform Act, signed into law on 31 July 2025, reset the financial floor for the entire industry. Life insurers now need ₦10 billion ($7.5million) in minimum capital, up from ₦2 billion. Non-life operators need ₦15 billion ($11 million), up from ₦3 billion. Reinsurers need ₦35 billion ($26 million). These aren’t large numbers by global standards, which speaks to how small and how thinly capitalised much of the Nigerian Insurance industry has been. By contrast, the minimum capital threshold for banks is 20x higher at ₦500 billion for National Commercial Banks and ₦200 billion for  International Commercial Banks.

To clear the new bars, several insurers issued shares. A lot of them. Lasaco Assurance alone almost doubled its share count in August through a rights issue. When a company floods the market with new shares faster than it grows its profits, the value of each existing share falls. That is the mechanical driver behind the sell-down in the insurance sector. Add profit-taking after a two-year run in which the insurance index returned 108% in 2024, and layer on the fact that rising Nigerian fixed-income yields are pulling institutional money away from equities, and you have the recipe for an index in the red.

Taking a step back from the share prices, its worth assessing why the government increased the capital base for insurance companies in the first place. 

Insurance does two jobs for an economy. The first is obvious: it pools risk, so that a fire, a death or a broken-down tanker does not bankrupt a household or a business. The second is more subtle and, perhaps even more important: Insurance premiums are one of the largest sources of long-term, domestic capital formation a country can build.

Here is why. Insurers collect money now and pay it out later, sometimes decades later, and in the case of life insurance, only at the end of one's life. Pension funds also play the same role.  In the meantime, the insurance company's job is to grow that money as effectively and responsibly until it needs to be paid out. Because this payout is infrequent, in mature markets, insurers and pensions are the single biggest source of patient, long-duration capital. The money that funds infrastructure, industry formation, factories, manufacturing, and even the VC and PE funds. They are the reason a country can finance a thirty-year road or a power plant without borrowing every naira of it from abroad. In the US, about 33% or $44.4 trillion in financial assets are held by insurers and pension funds. Yes, that's trillions! In Nigeria, by contrast, only 10-15% of local capital, ₦3 trillion ($22 billion) is held by insurers and pension funds. 

Nigeria barely has this engine yet. Insurance penetration, the value of premiums as a share of the economy, sits below South Africa, Kenya and even Ghana. That is the underdevelopment that is also the opportunity. NAICOM has been explicit that the recapitalisation is about building the sector's capacity to support the country's ambition of a $1 trillion economy. For Nigeria to stop relying so much on foreign debt and equity, this industry NEEDS to grow. The government is trying to build a domestic pool of permanent capital. The dilution pain is the entry fee for that.

To see why insurance can be such a good business, you have to see how an insurer actually makes money.  The job starts with underwriting. An insurer decides what risks to cover and on what terms, then sets a premium. This is simple to describe but hard to do in reality: across the whole pool of policies, the premiums collected must exceed the claims paid out plus the cost of running the business. If you get that right, you have an underwriting profit. Get it wrong, by mispricing risk or chasing market share, and you have an underwriting loss. Premiums are based on risk, and in an inherently risky country those premiums are high. However, if premiums are too high, then no one wants to take out an insurance policy. So insurers want to get as big as possible so that scale allows them to reduce premiums. This balancing act is where the work of actuaries comes in. 

However,  the premium is only the first engine. The second is my favourite financial term… the float.

Float is the money an insurer is holding at any given moment between collecting premiums and paying claims. It is not the insurer's money. It belongs, eventually, to policyholders. But until the claims come due, the insurer gets to invest it and keep the returns. The premium's job is to cover the expected claims. The float's job is to earn on top of that, for as long as the insurer can hold it. Think of it as the same function of free cash flow in a business. This is money that can be used to invest in appreciating assets, and it is essentially free/cheap for the insurer. 

This is the insight Warren Buffett built Berkshire Hathaway on. His observation was that even an insurer that runs a small underwriting loss can be a superb business, provided the float is large, long-lived and cheap. If the underwriting roughly breaks even, the insurer is effectively being paid to hold and invest other people's money. That is leverage with no interest cost, which is one of the rarest and most valuable structures in all of finance. As of the end of 2025 Berkshire’s businesses had $176 billion of insurance float and $529 billion of cash and investments held inside the insurance businesses. That’s over $700 billion

But not all float is created equal. General insurance float, the kind that backs motor and property cover, is short and lumpy. Claims tend to land within a year or two, and a bad flood or a spike in accidents can force a wave of payouts with little warning. It is useful float, but it is skittish. You cannot lock it into a thirty-year investment, because you might need it next quarter. It is for this reason that commercial banks don’t necessarily have these float dynamics. 

Life insurance and pension float is the opposite. It is long, often stretching across decades. It is statistically smooth, because while you cannot predict when any one person will die or retire, you can predict the pattern across hundreds of thousands of them with remarkable accuracy. And it is sticky: a life policy or a pension pot does not get cashed in on a whim.

That combination is the closest thing in finance to genuinely permanent capital, and it is why the life and pensions end of insurance is the prize, which brings us to where the real money, and the real trouble, is being made.

If long-dated, sticky liabilities are the best raw material in finance, then annuities and pension savings are the richest seam of it. An annuity is a promise to pay someone a fixed income for the rest of their life in exchange for a lump sum today. From the saver's side, it is security. From the insurer's side, it is a decades-long block of capital to invest, with a predictable payout schedule.

Over the past decade, the smartest money in global finance worked this out and moved in. Large asset managers began buying and building life and annuity insurers, not primarily to sell more policies, but to capture that float and channel it into private credit, loans to companies that they themselves originate. The insurer supplies the long-term money. The asset-management arm supplies the loans. The firm earns the spread between what it pays annuity holders and what it earns lending the float. American private equity firm Apollo and its insurer Athene are the template the whole industry has been chasing. It is, in effect, the Berkshire float model turbocharged with private lending.

It is a beautiful and extremely profitable machine, permeating all areas of finance from AI data centres to sports teams. Essentially, the investment arm and the borrower are the same company, and at some point this self-dealing can be dangerous. That is the line the billionaire Mark Walter is now accused of crossing. Walter, chief executive of Guggenheim and owner of the Los Angeles Dodgers, the Lakers and a stake in Chelsea through his holding company TWG Global, controls two life insurers, Delaware Life and Clear Spring. Those insurers had told regulators that around 3% of their portfolio was invested in Walter-linked companies. After an internal review triggered by a whistleblower and grand jury subpoenas, they disclosed the true figure was at least $17 billion, roughly 39% of invested assets. Federal prosecutors in Manhattan and the SEC are now investigating whether policyholder money was quietly financing Walter's own empire, including, reportedly, more than $1 billion of the money used to buy the Dodgers.

The lesson for the permanent-capital dream is sharp: the same structure that makes life and pension float so powerful also makes it dangerous, and the only thing standing between the two is the quality of the regulation.

Nigeria's insurers are at step one. They are being forced to build the capital base that could, one day, make them float-and-invest engines rather than thinly capitalised risk-carriers scraping by on underwriting. For the best-in-class operators like Custodian, this is already taking shape. However, for the others, the near-term dilution is the price of admission. The prize, if they can grow earnings, deepen penetration and deploy their float productively, is a domestic permanent-capital machine of exactly the kind Nigeria needs to fund its own development.

That is a large "if". A recapitalised balance sheet is potential, not performance. The capital can compound, as Custodian's has, or it can sit idle as expensive equity earning a mediocre return, which is what much of the market is pricing in right now. And there is a warning worth carrying from the Walter saga: as global private-capital firms start eyeing African insurance for the same permanent-capital reasons, Nigeria's regulators will need to be alert to the affiliated-lending temptation before it arrives, not after.

For the NGX investor, the takeaway is not "buy insurance stocks". The insurance index is cheap for structural reasons, and inside that cheapness sit two very different kinds of company: the ones that raised capital and can put it to work, and the ones that raised capital and cannot. 

Watch Out: the sector's re-rating will not be decided by the recapitalisation deadline but by the first full-year results after it, when the market finally sees which insurers turned their new capital into earnings and which are simply sitting on it.

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