Intakaful, the surplus is defined as an asset minus the liability of takaful riskfund. Liability comprises actuarial liability and accounting liability. Surplusexists due to the difference between actual experience and price assumptions.Total of surplus depends on how assets and liabilities of the takaful fund areassessed. Surplus can be split among participants (policyholders), to takafuloperators (shareholders), and keep in the fund for contingencies.
The surplus of the tabarru’account to be distributed between participants and takaful operators is basedon the fact that takaful contracts are generally built on tabarru’ (donation)and ta’awun (help-assist) along with mutual consent between parties. Tabarruprinciple ‘is a key principle that underlies takaful products while otherprinciples such as wakalah and mudharabah are used to support theimplementation of takaful operations. Surpluscomes from many sources such as excessive investment income, favourableexperience in benefits such as mortality benefits, fire etc. However, in familytakaful, the surplus is usually treated separately, namely underwritingsurplus. This is due to that there are often separate models used for investment,such as mudarabah while underwriting surplus aspects are more likely to beconsidered under the wakala model. FromShari’ah perspective of surplus, underwriting surplus emerge from risk fundswhich are actually an excess of takaful contributions derived from claimsincurred regardless of any investment gains arising from the contributionsaccumulated in the fund.
Therefore, the operator does not contribute to anyincremental growth or increase in the value of the funds. TheAccounting and Auditing Organization for Islamic Financial Institutions(AAOIFI) is an Islamic international autonomous non-for-profit corporate bodythat prepare and provide standards forIslamic financial institutions and the industry, including takaful. Accordingto AAOIFI, there are relevant standards allocating for the surplus, namelyFinancial Accounting Standards (FAS) No.
13 (Disclosure of Bases forDetermining and Allocating Surplus or Deficit in Islamic Insurance Companies).FAS 13 is intentionally incorporated to determine and allocate surplus ordeficit in Islamic Insurance Companies. It is required in the standards forTakaful operators to provide a statement of surplus (or deficit) of the policyholder. The Takafuloperators themselves should disclose the method they use in allocatingunderwriting surplus and the shari’ah basis applied in the notes.
Forgeneral takaful funds, the underwriting surplus is determined for each takafulbusiness class after taking into account commissions, unearned contributions,retakaful, claiming incurred and management expenses. Surplus can bedistributed according to the terms and conditions set by the company’s shari’ahcommittees. All takaful operators have to disclose the amount of surplus intheir takaful fund. Forfamily takaful, any surplus is determined by the annual actuarial valuation ofthe family takaful fund. The surplus that can be distributed to theparticipants is determined after deducting the claims or benefits paid,retakaful provisions, commissions, management expenses and reserves. It isdistributed according to the terms and conditions set by the company’s Shari’ahcommittees. Takafulcompany may invest the insurance surplus for the policyholder’s account, ifthere is a real provision for this effect in the insurance policy.
Theconsideration to be paid to the party in such investment related with percentageof investment profit in mudarabah or commission amount in the case of theagency, shall be stated in the insurance policy.