Takaful
surplus is usually distributed one time per annum at the end of the financial
year. Referring to the ultimate sum of surplus, the surplus to be distributed
should refer to the guidelines given by appointed actuary and endorse by a
member of the board of directors. The guideline prepared by appointed actuary
are based on several factors such as expectations of takaful participants,
regulations has been established by financial regulators, internal policy of
takaful institutions as well as contracts that have been agreed with the
takaful participants.

 

The
actuarial principles of the desired characteristics of the surplus distribution
system for the takaful scheme (if surplus belongs exclusively to the
participants):

 

a.
   Equitable

The
element of equitable should be applicable in surplus distribution system which
means the surplus only will be distributed to participants who really contribute
to profits. The actuarial present value of the surplus generated by the policy
should be same as the actuarial present value of bonus paid to the same policy.
For an equitable surplus distribution, takaful operators may adopt one of the
following three modes which are pro-rata, selective or off-setting.

 

b.   Acceptable

     
Participants need to accept the logic and fairness of the surplus
distribution method prepared by the actuary and adopted by the takaful company.

 

c.
  Simple

     
The method of surplus distribution system must be simple and easy to administer.
Therefore, easy for participants to understand and accept the logic.

 

d.
  Flexible

     
The system of surplus distribution must easy to change or modify if
circumstances cause changes in the amount of surplus available.

 

e.
   Consistent

Distribution
of surplus must in line with the actuarial basis for the provision of     contributions and liabilities.

 

The determination of surplus
is essentially an actuarial process because it relies strongly on and sensitive
to the actuarial estimation of liability provisions for the business.