Takaful surplus, the surplus to be distributed

Takafulsurplus is usually distributed one time per annum at the end of the financialyear which have been audited. Referring to the ultimate sum of surplus, thesurplus to be distributed should refer to the guidelines given by appointed actuaryand endorse by a member of the board of directors. The guideline prepared byappointed actuary are based on several factors such as expectations of takafulparticipants, regulations has been established by financial regulators, internalpolicy of takaful institutions as well as contracts that have been agreed withthe takaful participants.  Theactuarial principles of the desired characteristics of the surplus distributionsystem for the takaful scheme (if surplus belongs exclusively to theparticipants): a.   EquitableTheelement of equitable should be applicable in surplus distribution system whichmeans the surplus only will be distributed to participants who really contributeto profits.

The actuarial present value of the surplus generated by the policyshould 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 thefollowing three modes which are pro-rata, selective or off-setting. b.   Acceptable     Participants need to accept the logic and fairness of the surplusdistribution 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.

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  Flexible     The system of surplus distribution must easy to change or modify ifcircumstances cause changes in the amount of surplus available. e.   ConsistentDistributionof surplus must in line with the actuarial basis for the provision of     contributions and liabilities. The determination of surplusis essentially an actuarial process because it relies strongly on and sensitiveto the actuarial estimation of liability provisions for the business.

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