Moody’s has predicted that the Islamic finance and re/takaful sectors are likely to continue to exhibit strong growth in the coming years, largely driven by fertile growth prospects in Southeast Asia and North Africa.
The takaful market, which is the Islamic alternative to insurance, attracted gross premium contributions of US $14.9 billion in 2015, and is estimated to have attracted over $20 billion 2017.
Moody’s expects this growth trend to continue in the coming years, which will likely result in a much greater demand for retakaful (reinsurance).
Furthermore, Moody’s predicts that the Islamic finance sector more generally is likely to continue to exhibit the strong growth that it has seen over the past 10 years, despite relatively flat prospects for 2018.
This forecast reflects the current under-representation of the Islamic sector in the global financial system, and considers the rising demand for Shari’ah-compliant financial instruments.
The sector outlook proposed by Moody’s contrasts significantly with a recent report by A.M. Best, which questioned the long-term sustainability of the retakaful market as it competes with conventional reinsurers.
Since 2008, Islamic banking penetration in the Gulf Cooperation Council (GCC) has risen 14%, and annual sukuk (bond) issuances have more than doubled from $42 billion to $100 billion.
Despite these promising figures, Moody’s anticipates flat growth in the sukuk market over 2018, although it suggests that Islamic banking and takaful markets will likely remain stable as insurance premiums pick up in newly penetrated Asian and African markets.
Regulatory changes in many GCC countries have also resulted in higher insurance prices for much of the Shari’ah-compliant Islamic insurance industry, particularly for motor and medical cover.
Moody’s expects the growth of Islamic financing assets to remain around 7% over 2018, which will continue to grow faster than conventional assets across core Islamic financial markets.
This higher growth rate has already resulted in a modest increase to the market share of Islamic financing assets, which currently make up 40% of total financial assets in core Islamic markets, in contrast to 39% in December 2016.