Liquidity Risk and Solvency Performance of Life Insurance Firms in Nigeria

This study examined the effect of liquidity risk on the solvency performance of life insurance firms in Nigeria, with specific focus on liquidity ratio, cash ratio, and asset liquidity composition, while capital adequacy ratio was used as a proxy for solvency performance. The study adopted an ex post facto research design using panel data obtained from seven selected life insurance firms over a five-year period from 2020 to 2024, resulting in a total of thirty-five observations. Data were analysed using descriptive statistics, correlation analysis, and panel regression technique, specifically the random effects model, after conducting preliminary tests including redundant fixed effects and Hausman tests. The findings revealed that liquidity ratio has a negative and statistically significant effect on capital adequacy ratio, while cash ratio and asset liquidity composition have positive and statistically significant effects on solvency performance. The results further showed that liquidity risk indicators jointly have a strong explanatory power on variations in capital adequacy ratio. The study concluded that effective liquidity management plays a critical role in enhancing the solvency performance of life insurance firms in Nigeria, although excessive liquidity may reduce financial efficiency. The study recommended that firms should maintain an optimal liquidity level, strengthen cash management practices, and adopt a balanced asset allocation strategy to improve financial stability and long-term solvency.