In fund. Therefore, the operator does not contribute to

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.


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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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


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.

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


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.