The National Insurance Commission (NAICOM) has recently enacted a pivotal regulatory amendment pertaining to the prerequisite coverage for airframes under leasing and financing arrangements, signaling a concerted effort by the Federal Government to enhance the operational environment and reposition the nation’s aviation sector. This was revealed on Monday November 24, 2025 during the maiden summit on aviation insurance compliance and financing technical awareness organized by the Nigerian Civil Aviation Authority (NCAA) themed, “Securing the Skies: Navigating Aviation and Aircraft Finance Safeguards”.
According to a statement by NAICOM, this directive which takes effect on May 1, 2025, constitutes an addendum to Chapter 5 of the 2022 Prudential Guidelines for Insurers and Reinsurers. The underlying mandate, drawn from Section 72 (1) and (2) (a – f) of the Insurance Act 2003 and existing stipulations, necessitates the domestication of all insurance and reinsurance transactions. However, recognizing the exceptional nature of specific risks and circumstances, Section 72(4) permits the Commission to sanction placements outside Nigeria if local capacity is deemed insufficient. Furthermore, any overseas reinsurance endeavor for aviation liabilities must secure the Commission’s preceding authorization and must be ceded to an entity possessing a Financial Strength Rating (FSR) no lower than ‘A-’ (S&P) or ‘A’ (A.M. Best), as mandated by Paragraph 5.4.1 of the Prudential Guidelines 2022.
According to Mr. Ajuyah Alfred, NAICOM’s Assistant Director of Special Risk, in pursuit of safeguarding the interests of capital providers and aircraft lessors, the new regulatory framework introduces specific allowances regarding risk retention for leased or financed aircraft where dictated by these entities. The permissible net account retention for the Nigerian insurance sector is stipulated at 10% or less of the combined single limit (CSL) of the assets involved. Concurrently, the aggregate gross capacity retention for the domestic market, encompassing treaty reinsurance coverage, must not exceed 30% or less of the CSL associated with the leased or financed airframes.
A critical stipulation to assure financiers and lessors is the obligatory incorporation of a cut-through clause within the treaty reinsurance agreements which is designed to ensure that lessors and financiers are directly compensated should the reinsured organization become financially impaired or otherwise prevented from fulfilling its obligations, or upon receipt of written notification detailing such inability to meet commitments. This mechanism, introduced to bolster the security of international investments in the Nigerian aviation ecosystem, Mr. Ajuyah notes, is expected to augment the dependability of local insurers and thereby enhance investor confidence.
As stated by Mr. Chika Mbonu, MD/CEO of KSBC Advisory Partners Ltd., these measures arrive amidst a broader transformation of the Nigerian aviation coverage environment, driven by market evolution and alignment with global benchmarks. He noted that the nation’s air transportation sector faces systemic hurdles, including substantial foreign exchange volatility, necessitating that approximately 60% of airline expenditures – covering leases, maintenance, and insurance premiums – are denominated in foreign currencies, typically the U.S. dollar, while operating revenue is primarily generated in the local naira. This currency mismatch, he noted, generates unpredictable fiscal situations for operators, frequently resulting in delayed lease remittance and lapses in policy renewal.
He added that the industry is constrained by a relatively small fleet size: fewer than 140 aircraft serving a populace exceeding 200 million – a statistic reflecting the stringent terms imposed by aircraft lessors, such as elevated security deposits and more frequent maintenance reserves, which consequently increase operational expenditure for local air carriers.
Mr. Adeseye Ajibulu, Head of Claims Administration at Rex Insurance Ltd. divulged that the recently signed Nigerian Insurance Industry Reform Act (NIIRA) 2025 grants NAICOM augmented authority for enforcing mandatory aviation coverage and establishes a 45-day claims settlement period, which is anticipated to rationalize the claims process. These legislative shifts, he opined, underscore the emphasis on maximizing local content while simultaneously guaranteeing sufficient global protection.
Experts consented that to fully harness the sector’s potential, alignment with international best practices like those established by the International Civil Aviation Organization (ICAO) is essential, focusing on comprehensive risk evaluation and streamlined claims resolution. They noted that Global providers, such as Lloyd’s of London, require evidence of maintenance adherence, prompt premium remittance, and complete transparency from Nigerian underwriters.
It was equally generally agreed that steps need to be taken to minimize Nigeria’s reliance on foreign services (which currently account for over $1 billion in annual outflow) by expanding local capacity, including the potential utilization of the African Aviation Insurance Pool (AAIP) as well as investments in local Maintenance, Repair, and Overhaul (MRO) facilities.
