This article was designed to examine the link between investment portfolio of insurance firms and the variables of economic development such as the growth rate of gross domestic product (GDP), unemployment, capacity utilization and inflation rates in Nigeria from 1990 to 2011. Blends of desk, exploratory and descriptive research design were used. Data were analyzed using descriptive and inferential tools. The discoveries were that insurance companies in Nigeria got over 95% of income on yearly basis from premium and accumulated large sum of funds after expenditures on claims but invest less than 1% of such funds. Stock and bonds, government securities as well as real estate properties and mortgages dominated the investment portfolio of these financial institutions with heavy concentration in the assets of quoted companies. Hence, small and medium scale enterprises were not funded. As such, insurance firms were not making any significant influence on economic development in the country as evidenced in the marginal growth rates of gross domestic products (GDP) and capacity utilization, among others. Therefore, the recommendations were that insurance companies should increase their wealth allocations to investments with proper spread and mix to cover small and medium scale enterprises and short term loans and to introduce finance and insure products to broaden their income base. This is expected to enhance their investment positions and contributions to economic development and growth in the country.
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