The ongoing Middle East conflict has shown that takaful operators have limited direct underwriting exposure to geopolitical events, Moody’s Ratings said in its latest sector report.
Standard policies generally exclude war-related losses, and specialist risks are passed to international insurers and reinsurers.
The main risk lies in investment portfolios, the ratings agency noted.
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It added that a prolonged conflict could weaken economic activity, reduce asset values, push up claims inflation and hold back premium growth, particularly in the Gulf markets. Investment income has become a more important contributor to takaful earnings, helping to lift profitability in several markets during 2025 and the first half of 2026.
Other challenges, according to Moody’s, include general claims inflation, rising medical costs and climate-related risks.
Profitability has improved in some key markets, but Moody’s said a wide gap remains between leading operators, with strong underwriting discipline, diversified business models and advanced risk management, and the rest of the industry.
Growth prospects
Moody’s expects global takaful contributions to keep rising moderately over the next two to three years, supported by economic expansion, growing demand for Shariah-compliant financial products, the spread of compulsory insurance schemes, higher healthcare spending and government efforts to promote financial inclusion.
Governments in key markets are also encouraging consumers to save more and use protection insurance, which the agency said should underpin growth in family takaful, the Islamic equivalent of life and savings insurance. Uptake is already strong in Southeast Asia and is expected to rise more gradually in Africa and the GCC.
According to the report, longer-term drivers remain intact. Population growth, urbanisation, expanding middle-income groups and low insurance penetration offer significant room to grow. In the main takaful markets, combined takaful and conventional insurance penetration (premiums as a share of GDP) is in the low to mid single digits, far below the 11.8 per cent in North America, according to the report.
GCC, Southeast Asia lead
Strong economic activity, high healthcare spending, population growth and compulsory insurance are supporting premiums in the GCC, which continues to drive global takaful growth, Moody’s said.
Saudi Arabia remains the world’s largest takaful market, benefiting from its Vision 2030 diversification plan, which includes tougher compulsory insurance requirements. The kingdom’s insurance sector reported improved profitability in the first half of 2026 on stronger underwriting and higher investment income, although smaller operators remain uneven.
Malaysia is the largest takaful market in Asia and the second largest globally. Its total takaful fund assets rose to $16 billion in 2025. Family takaful remains the dominant product, and the industry is focusing on digitalisation, sustainability, financial inclusion and talent development.
Indonesia, Pakistan and Bangladesh also offer attractive long-term prospects because of low penetration and growing policy support for Islamic finance. In Africa, uptake remains low despite a large Muslim population and favourable demographics. Stronger regulation in Morocco, Egypt, Nigeria and parts of West Africa is gradually improving conditions, although these markets are at an earlier stage than the GCC and Southeast Asia, the agency said.
Moody’s sees consolidation remains one of the strongest structural themes in the sector. Tighter regulation and sustained spending on digital transformation are pushing smaller providers to merge with larger rivals.
Source: Khaleej Times