In takaful,
the surplus is defined as an asset minus the liability of takaful risk fund. Liability
comprises actuarial liability and accounting liability. Surplus exists due to
the difference between actual experience and price assumptions. Total of surplus
depends on how assets and liabilities of the takaful fund are assessed. Surplus
can be split among participants (policyholders), to takaful operators
(shareholders), and keep in the fund for contingencies.


Surplus come
from many sources such as excessive investment income, favourable experience in
benefits such as mortality benefits, fire etc. However, in family takaful, the
surplus is usually considered separately, called underwriting surplus. The
reason for split in family takaful is that there are often separate models used
for investment, such as mudarabah whereas underwriting surplus aspects are more
likely to be considered under the wakala model.

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From Shari’ah
perspective of surplus, underwriting surplus emerge from risk funds which are
actually an excess of takaful contributions derived from claims incurred
without taking into account of any investment gains earned from the
contributions accumulated in the fund. Therefore, the operator does not
contribute to any incremental growth or increase in the value of the funds.


Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI) is an Islamic international autonomous non-for-profit corporate body
that prepare accounting, auditing, governance, ethics and Shari’ah standards
for Islamic financial institutions and the industry. According to AAOIFI, there
are relevant standards allocating for the surplus, namely Financial Accounting
Standards (FAS) No. 13 (Disclosure of Bases for Determining and Allocating
Surplus or Deficit in Islamic Insurance Companies). FAS 13 is intentionally incorporated
to determine and allocate surplus or deficit in Islamic Insurance Companies. It
is required in the standards for Takaful operators to provide a statement of
surplus or deficit of the policyholder. The Takaful operators themselves should
disclose the method they use in allocating underwriting surplus and the shari’ah
basis applied in the notes.


For general takaful
funds, the underwriting surplus is determined for each takaful business class
after taking into account commissions, unearned contributions, retakaful, claiming
incurred and management expenses. Surplus can be distributed according to the
terms and conditions set by the company’s shari’ah committees. All takaful
operators have to reveal the amount of surplus in their takaful fund.

For family
takaful, any surplus or deficit is determined by the annual actuarial valuation
of the family takaful fund. Any actuarial deficit will be made well by
shareholders’ funds via Qard Hassan. The surplus that can be distributed to the
participants is determined after deducting the claims / benefits paid and payable,
retakaful provisions, reserves, commissions and management expenses and it is distributed
according to the terms and conditions set by the company’s Shari’ah committees.


An insurance
company may invest insurance surplus for the policyholder’s account, if there
is a real provision for this effect in the insurance policy. The consideration to
be paid to the party in such investment (percentage of investment profit in
mudarabah or commission amount in the case of the agency) shall be stated in
the insurance policy.