Since its inception in 1979, the takaful industry has rapidly grown particularly in Muslim regions, namely the Middle East, North Africa and South East Asia. Presently, its double-digit growth rate continues though at a decremental rate. Quite the reverse, other components of the Islamic financial system (i.e. Islamic banking and Islamic capital market) maintain an incremental growth trend. In terms of Islamic financial assets, Islamic banking comes first in terms of both size and growth whilst takaful lags behind. Theoretically, within this system, general takaful products are complementary to the Islamic banking debt-based financing products that constitute the major share of Islamic banking offerings. For instance, home takaful and motor takaful provide shariah-compliantprotection schemes to murabahah home financing and vehicle financing, respectively. Yet, the global takaful industry is not growing in parallel with Islamic banking.

This study identifies the internal and external factors affecting the investment performance, profitability and wakalah fees of general takaful companies operating in Saudi Arabia, Malaysia, UAE, Qatar and Pakistan using an unbalanced panel data set of consisting of 53 companies. Two investment performance measures, namely net investment income and investment yield, are utilized to capture different aspects of the takaful investment operations. Profitability is measured by the profit before tax of takaful companies.

This study aims to identify the internal and external factors affecting the financial performance of general takaful companies operating in Saudi Arabia, Malaysia, UAE, Qatar and Pakistan, using an unbalanced panel data set consisting of 53 companies. Data were hand-collected from the official financial reports of takaful companies. Two performance measures, namely, net investment income and investment yield, are used to capture the different aspects of the takaful investment operations. Based on relevant theory and literature, these measures are related to three economic variables, namely, GDP per capita, equity returns and interest rate, and four company-specific variables, namely, company size, gross contributions, retakaful dependence and liquidity. An ordinary least squares regression model, fixed-effects model and random-effects model are estimated for both performance measures. The study finds that company size, liquidity, retakaful dependence, GDP per capita, equity returns and interest rate are statistically significant determinants of the financial performance; company size, GDP per capita, equity returns and interest rate are positively related to performance, whereas liquidity and retakaful dependence are negatively related to performance.