Saudi Arabia: The Gulf Cooperation Council’s Islamic insurance sector is set to maintain around 10 percent annual growth in 2025 and 2026, buoyed by population expansion, infrastructure spending, and regulatory reforms, according to S&P Global Ratings. 

Saudi Arabia, the region’s largest Islamic insurance market, will continue to drive growth as Vision 2030 megaprojects fuel demand for coverage, S&P said in its latest white paper. 

Islamic insurance, or Takaful, has expanded rapidly across the GCC in recent years, logging 24 percent to 28 percent growth in 2022 and 2023. Strong government backing, mandatory health insurance regulations, and a rising awareness of Sharia-compliant financial products have supported the sector’s expansion. 

“Islamic and Takaful insurers in the GCC region continue to benefit from favorable growth prospects, and we therefore expect 2025 to be another year with solid top-line growth,” S&P said. 

However, the agency cautioned that “heightened competition in motor and medical lines, primarily in Saudi Arabia, the largest Islamic insurance market in the region, will likely weigh on overall earnings in 2025.” 

The sector posted record earnings in 2024, with aggregate net profit rising to about $1.1 billion, up from $940 million in 2023. Saudi insurers led the surge, generating around $960 million last year versus $853 million a year earlier, while earnings in other GCC markets climbed to over $120 million from $87 million. 

In 2024, insurers in the GCC region excluding Saudi Arabia recorded 13 percent revenue growth, while the Kingdom experienced a 14 percent expansion. 

S&P said that net earnings for the sector in the first half of 2025 fell 35 percent year on year, citing a 40 percent drop in profits in the Saudi market and weaker earnings in other regional markets. 

This is mainly attributed to “heightened competition in motor and medical lines, as well as a decline in investment returns,” it added. 

Strong credit ratings 

According to S&P, credit ratings for Islamic insurers in the GCC will remain largely stable over the next 12 months, as most players are well capitalized. 

The report added that total shareholder equity in the sector rose to approximately $8.5 billion in 2024, up from $7.5 billion in 2023, supported by strong earnings and capital injections. 

S&P Global Ratings projects that overall credit conditions for Islamic insurers will remain relatively stable over the next 12 months. However, it said that “some loss-making players will continue to face challenges relating to solvency and other regulatory demands,” which could prompt them to pursue mergers and acquisitions or raise capital to meet their needs. 

In June, Fitch Ratings echoed similar views, saying that mergers and acquisitions are set to accelerate in Saudi Arabia’s insurance industry as many firms struggle to meet new capital requirements or remain profitable amid intense competition and rising costs. 

Fitch also noted that several smaller insurers are already in discussions with larger rivals to strengthen their capital positions and ensure long-term survival. 

“Consolidation is particularly evident among smaller and midsize players in Saudi Arabia and the UAE, as economies of scale become more important,” S&P said in its latest report, adding that thin capital buffers and rising regulatory and solvency requirements will continue to drive consolidation in the sector. 

Potential challenges 

S&P warned that a flare-up in the conflict between Israel and Iran, along with any regional escalation, could negatively affect business sentiment across the Middle East, including the GCC, and pressure insurers’ earnings.