shariah

Intakaful, the surplus is defined as an asset minus the liability of takaful riskfund. Surplus exists due to the difference between actual experience and priceassumptions. Total of surplus depends on how assets and liabilities of thetakaful fund are assessed. Surplus can be split among participants(policyholders), to takaful operators (shareholders), and keep in the fund forcontingencies. 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 arise 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 well-known Islamic international autonomous non-for-profitcorporate body that prepare and provide standards for Islamic financialinstitutions and the industry, including takaful. According to AAOIFI, thereare relevant standards allocating for the surplus, namely Financial AccountingStandards (FAS) No. 13 (Disclosure of Bases for Determining and AllocatingSurplus or Deficit in Islamic Insurance Companies). FAS 13 is intentionallyincorporated to determine and allocate surplus or deficit in Islamic InsuranceCompanies.

It is required in the standards for Takaful operators to provide astatement of surplus (or deficit) of the policyholder. The Takaful operatorsthemselves should disclose the method they use in allocating underwritingsurplus 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 and all takaful operators have to disclose the amount of surplus intheir takaful fund. Forfamily takaful, the 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.