In takaful, the surplus is defined
as an asset minus the liability of takaful risk fund. 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.
The surplus of the tabarru
‘account to be distributed between participants and takaful operators is based
on the fact that takaful contracts are generally built on tabarru’ (donation)
and ta’awun (help-assist) along with mutual consent between parties. Tabarru is
a key principle that underlies takaful products. Other shari’ah principles such
as mudarabah are wakalah are used to support the implementation of takaful
Surplus comes 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 treated separately, namely underwriting surplus. This is due to that
there are often separate models used for investment, such as mudarabah while underwriting
surplus aspects are more likely to be considered under the wakala model.
From Shari’ah perspective of
surplus, underwriting surplus arise from risk funds which are actually an
excess of takaful contributions derived from claims incurred regardless of any
investment gains arising 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.
The Accounting and Auditing
Organization for Islamic Financial Institutions (AAOIFI) is an well-known Islamic
international autonomous non-for-profit corporate body that prepare and provide
standards for Islamic financial institutions and the industry, including
takaful. 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 and all takaful operators
have to disclose the amount of surplus in their takaful fund.
For family takaful, the surplus is
determined by the annual actuarial valuation of the family takaful fund. The
surplus that can be distributed to the participants is determined after
deducting the claims or benefits paid, retakaful provisions, commissions, management
expenses and reserves. It is distributed according to the terms and conditions
set by the company’s Shari’ah committees.
Takaful company may invest the 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 related with percentage of investment profit in mudarabah or
commission amount in the case of the agency, shall be stated in the insurance