Indonesian takaful eyes mergers as capital needs tighten: Fitch Ratings

More than 70% of takaful windows must be spun off by end-2026.

Indonesian takaful companies are preparing for higher capital requirements taking effect in 2026 and tightening further by 2028, according to Fitch Ratings. 

Whilst over half may meet the thresholds through organic capital generation, Fitch expects increased capital-raising and mergers and acquisitions activity.

Takaful operators face added pressure as their capital rules remain looser than those for conventional insurers, making it harder to compete with better-capitalised rivals. 

More than 70% of takaful windows must be spun off by end-2026, with the rest required to transfer sharia portfolios to full takaful entities—putting further strain on general sharia profitability during the transition.

Takaful’s market share slipped from 10.1% in 2024 to 8.4% in early 2025, driven by weaker general sharia contributions linked to lower vehicle sales. 

Life sharia, however, continued to grow on the back of rising awareness.

Fitch notes challenges ahead, including low takaful literacy, limited product range, and restricted retakaful capacity. 

Still, the sector holds long-term growth potential given Indonesia’s large Muslim population, low insurance penetration, and ongoing regulatory reforms.