Retakaful operates in a considerably larger market than it did a decade ago.
Takaful has expanded across its main markets in Southeast Asia and the Middle East, while new ones continue to emerge in Africa and Central Asia. Regulation has developed, operators are more experienced and the risks requiring protection are becoming broader and more complex.
Yet a larger takaful market does not automatically result in an equally large retakaful market. Business volume growth alone does not guarantee sustainable opportunities for retakaful providers.
Earlier assessments of the sector highlighted challenges including scale, access to good-quality business and competition from conventional reinsurers. AM Best raised these issues in its Special Report on the Retakaful industry in 2018. Its subsequent Market Segment Reports in 2023 and 2024 suggest that these challenges remain relevant. Dedicated retakaful operators have struggled to establish a strong foothold in the MENA market, where much capacity is provided through branches, windows and subsidiaries of conventional reinsurers.
The market has become larger and more established, but also more demanding.
A larger underlying takaful market
The Islamic Financial Services Board’s 2026 Stability Report estimates global Islamic insurance assets at more than $71bn as at the third quarter of 2025, representing year-on-year growth of 13.9%. The GCC accounted for approximately 42.5% of those assets, while East Asia and the Pacific contributed a further 31.6%.
Malaysia remains an important market for takaful. Total takaful gross contributions reached MYR16.38bn ($4.01bn) in 2025, up 4.73% from the previous year. General takaful grew more strongly, with gross written contributions reaching MYR6.64bn ($1.63bn).
Elsewhere in Asia, established markets such as Indonesia and Pakistan continue to develop, while newer jurisdictions such as the Philippines, Singapore and Thailand are introducing takaful products.
The underlying opportunity for takaful is therefore larger than it once was. But headline takaful numbers are only the starting point for understanding retakaful.
Takaful growth does not guarantee retakaful demand
Takaful contributions are often used as an indication of potential retakaful demand. The relationship, however, is more complicated.
First, only part of the business written by a takaful operator will be ceded. Retention levels vary according to the nature of the risk, the strength of the operator’s balance sheet and the structure of its reinsurance programme.
A large motor takaful portfolio, for example, may generate substantial contribution volume but require less retakaful support than catastrophe-exposed property or major engineering risks.
Second, not all ceded takaful business necessarily goes to retakaful.
Conventional reinsurers continue to play a role in many takaful programmes. The reasons may include available capacity, financial strength ratings, specialist expertise, price, existing relationships and the structure of international reinsurance programmes.
Malaysia provides stronger guidance on when takaful risks may be ceded to conventional reinsurers. Bank Negara Malaysia’s Shariah Advisory Council requires takaful operators, including professional retakaful operators, not to cede risks to conventional insurers except in specified circumstances, including where takaful capacity or expertise is unavailable or its use could be detrimental to the takaful fund.
The implication is important: the size and growth of the takaful sector do not by themselves indicate how much business is realistically available to retakaful providers.
The quality of growth matters
A rapidly growing market may create more demand for retakaful. But growth may be accompanied by intense competition, inadequate pricing or expansion into classes experiencing deteriorating claims.
Motor and medical business illustrate why contribution growth needs to be assessed alongside claims experience. Motor can generate substantial volume, but frequent claims and repair costs can put pressure on margins. In medical business, rising treatment costs and utilisation can cause claims to grow faster than contributions. Sustainable retakaful growth therefore depends on the quality and profitability of the underlying takaful market, not simply its rate of expansion.
For a retakaful provider, strong primary-market growth alone is not a reason to pursue volume. The more important question is whether the business can be written profitably through sound underwriting discipline and careful client selection.
How providers are adapting
Interestingly, the industry has not seen a significant number of new standalone retakaful operators in recent years. Instead, capacity is largely provided by a relatively small group of established players, including subsidiaries and divisions of larger reinsurance groups, national reinsurers and Shariah-compliant windows.
This is consistent with the experience of the broader reinsurance market, where scale increasingly matters, and leading global reinsurers benefit from strong balance sheets, diversification, sophisticated risk management and the ability to offer a broad range of solutions.
Retakaful inevitably faces the same economics. An effective operation needs more than Shariah-compliant capital: it needs underwriting expertise, actuarial support, claims capabilities, risk modelling, technology and suitable retrocession.
For some providers, these capabilities can be supported by a wider group. Others may develop them internally or through partnerships.
The question is whether the provider can offer sufficient security and technical capability to meet the needs of increasingly sophisticated takaful operators.
Competing on more than capacity
Takaful operators increasingly need support in catastrophe modelling, health pricing, actuarial analysis, claims management, product development and emerging risks. These include climate-related risks, renewable energy, cyber risks and medical inflation, which are expected to increase demand for retakaful capacity and technical expertise. The wider reinsurance industry is seeing the same trend.
For retakaful, this creates a higher competitive threshold. Shariah compliance remains fundamental, but providers must go beyond compliance alone. Ongoing research, interpretation and practical application of Shariah principles will continue to play an important role in developing solutions for new and emerging risks. For Malaysian Re, continued investment in Shariah research and expertise can help support the development of practical solutions for evolving client needs.
At the same time, cedants increasingly expect the same levels of financial security, technical expertise, analytical support and service quality offered by leading reinsurers. Retakaful therefore competes not only against other retakaful providers, but also against conventional reinsurers. To remain relevant, it must combine strong Shariah credentials with the underwriting, actuarial, claims and risk-management capabilities expected across the global reinsurance industry.
Regulation and Shariah frameworks
There has been much development in the governance aspects of takaful. The international standard setting bodies have continued to strengthen standards for supervision and governance including for takaful, while national regulators have developed more detailed requirements relating to capital, governance, conduct and risk management.
Bank Negara Malaysia’s Hajah and Darurah policy, effective from January 2025, provides a structured framework for dealing with circumstances in which strict Shariah-compliant arrangements may not be practically available.
Although the principle remains one of preference for Shariah-compliant solutions, the framework acknowledges that practical questions of capacity and expertise cannot be ignored. This places greater responsibility on retakaful providers.
That preference creates an opportunity, but it does not remove the need to demonstrate commercial and technical credibility.
The next test for retakaful
Retakaful today operates from a much stronger foundation than it did during its formative years. The underlying takaful market is larger, regulatory and Shariah frameworks are more developed, and the range of risks requiring protection continues to expand. Yet the familiar challenges of scale, access to good-quality business and competition from conventional reinsurers remain.
The way retakaful capacity is provided has adapted. Alongside standalone operators, the market draws on divisions and subsidiaries of larger reinsurance groups, national reinsurers and Shariah-compliant windows. Some providers also use partnerships to access specialist capabilities. These arrangements offer different ways to combine Shariah-compliant risk sharing with the financial and technical resources that takaful operators need, although the underlying commercial challenges remain.
The next test is whether providers can fulfil retakaful’s purpose of Shariah-compliant risk sharing while responding to emerging risks and rising expectations from takaful operators. Malaysian Re believes that the future of retakaful lies in combining rigorous Shariah compliance with strong technical capabilities and long-term partnership value. Providers that can bring these elements together will be better placed not only to supply capacity, but also to help takaful operators manage emerging risks, improve portfolio quality and build sustainable markets over time. A
Mr Ahmad Noor Azhari Abdul Manaf is the President and CEO of Malaysian Re.