In fund. Liability comprises actuarial liability and accounting

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. This is
due to 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 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


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 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,
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.