The growth of gross takaful contributions was flat in 2016 compared with that of 2015, and will remain the same in 2017-2018, all other factors unchanged, said S&P Global Ratings.
In its new report, “Islamic finance in 2018: Slow growth is the new normal”, the ratings agency believes the takaful industry has ample room for growth if aided by regulatory incentives and further development in other Islamic finance segments.
Insurance penetration in core Islamic finance markets is still low, with premiums in the six GCC countries averaging 1%-2% of GDP, compared with over 6% in more developed markets.
Some recent regulatory actions, such as the introduction of a compulsory health insurance scheme in Dubai, for example, have created growth opportunities for participating companies.
The agency said rising demand for life and savings products, or the introduction of further compulsory coverage, could further stimulate growth. “At the same time, we believe tightening risk-based regulations in some markets will help create stronger takaful players but could increase operating costs, particularly for some smaller companies,” S&P said.
The Islamic finance industry will continue to expand this year, but lose some momentum in 2018, according to the ratings agency. The industry’s assets reached US$2 trillion at year-end 2016, slightly below S&P’s September forecast.
Even though sukuk issuance accelerated in the first half of 2017 and will likely stay strong in the second half, S&P does not expect this growth rate to be sustainable. Stronger growth is possible if supervisory bodies and market participants together achieve greater standardisation, resulting in a truly global industry.
Islamic finance remains concentrated primarily in oil-exporting countries, with the GCC, Malaysia, and Iran accounting for more than 80% of the industry’s assets. M