Indonesian takaful companies are expected to focus on balancing earnings and meeting higher capital requirements, which would come into effect in 2026 and be tightened further by 2028, says Fitch Ratings.
The global credit rating agency, in its report “Indonesia Takaful Monitor 2025”, expects capital-raising and M&A activity within the sector, although more than half should be able to meet the requirements via organic capital generation.
The capital requirements for takaful operators remain significantly lower than for conventional insurers, with the gap adding to the competitive challenges for takaful companies. Takaful companies will need to compete with better-capitalised conventional insurers, which could result in further pressure on their market share.
More than 70% of takaful windows are required to be spun off by end-2026, while the remaining 30% will transfer their Shariah portfolios to fully fledged takaful. Fitch expects tight competition to weigh on the general Shariah sector profitability before all takaful windows complete the spin-off. Life Shariah sector earnings will remain under pressure due to market volatility and high medical claim inflation, Fitch adds.
Takaful’s share of total insurance premiums rose to 10.1% in 2024 but slipped back to 8.4% in the first four months of 2025, reflecting a contraction in general Shariah contributions. General takaful’s gross contributions fell in both 2024 and early 2025, due mainly to weaker vehicle sales, while family takaful contributions continued to grow, supported by higher awareness.
Fitch anticipates a lower literacy rate on takaful products compared with conventional insurance, narrow product diversification and limited retakaful capacity to continue to weigh on sector growth in the near term.
However, the sector still presents opportunities over the near term, given Indonesia’s status as one of the biggest Muslim populations in the world; regulatory efforts on the capital requirement and takaful window spin-off; and with a low insurance penetration rate and halal businesses indicating high potential growth.