Takaful operators have limited direct exposure to losses arising from the ongoing Middle East conflict because war-related risks are generally excluded from standard insurance policies, Moody’s Ratings said in a new sector report.
The ratings agency said specialist geopolitical risks are typically transferred to international insurers and reinsurers, limiting the direct impact on takaful providers.
However, a prolonged conflict could create broader economic pressures for the industry. Moody’s said weaker economic activity, declining asset values, higher claims inflation and slower premium growth could affect takaful operators, particularly in Gulf markets.
Investment income has become an increasingly important source of earnings for takaful companies, helping improve profitability in several markets during 2025 and the first half of 2026.
The sector continues to face other challenges, including general claims inflation, rising healthcare costs and increasing risks linked to climate change.
Moody’s said profitability had improved in several major markets, but significant differences remained between operators. Companies with strong underwriting discipline, diversified business models and advanced risk management have generally performed better than weaker providers.
The agency expects global takaful contributions to continue growing at a moderate pace over the next two to three years. Economic expansion, increasing demand for Shariah-compliant financial products, compulsory insurance schemes and higher healthcare spending are expected to support the sector.
Government initiatives aimed at improving financial inclusion and encouraging consumers to increase savings and use protection products are also expected to support family takaful, which provides Islamic alternatives to conventional life and savings insurance.
Family takaful has already gained significant acceptance in Southeast Asia, while Moody’s expects adoption to increase more gradually across Africa and the Gulf Cooperation Council.
Long-term growth prospects remain supported by population growth, urbanisation, expanding middle-income populations and relatively low insurance penetration.
In major takaful markets, combined insurance penetration remains in the low to mid single digits when measured as premiums relative to gross domestic product. Moody’s said this compares with 11.8% in North America, indicating significant potential for expansion.
GCC and Southeast Asia remain key markets
The GCC continues to drive global takaful growth, supported by economic activity, population growth, high healthcare spending and compulsory insurance requirements.
Saudi Arabia remains the world’s largest takaful market. Its Vision 2030 economic diversification programme has supported the insurance sector, including through stronger compulsory insurance requirements. The country’s insurance industry recorded improved profitability in the first half of 2026, helped by stronger underwriting and higher investment income, although performance among smaller operators remained uneven.
Malaysia is the largest takaful market in Asia and the world’s second largest. Total takaful fund assets reached $16 billion in 2025, with family takaful remaining the dominant segment.
Indonesia, Pakistan and Bangladesh also have long-term growth potential because of low insurance penetration and increasing policy support for Islamic finance.
In Africa, takaful adoption remains relatively low despite favourable demographics and a large Muslim population. Moody’s said regulatory improvements in Morocco, Egypt, Nigeria and parts of West Africa are gradually creating better conditions, although these markets remain less developed than those in the GCC and Southeast Asia.
Consolidation is also emerging as a major structural trend. Tighter regulation and rising spending on digital transformation are encouraging smaller takaful providers to merge with larger companies.
