Surplus-sharing practices in takaful operations: Shariah perspective and their current implementation

One of the arguable issues within the takaful industry is the underwriting surplus on the end of financial year of the takaful operator. In reality, the exercise of handling, allocating and sharing the underwriting surplus of takaful operation diverse depending on legal substructure, regulatory requirements and accepted takaful model by specific operator. It is value mentioning that shariah intellectuals are not on contract whether takaful operator is allowable to share in underwriting surplus or not. Subsequently, there are two main practices centred in Gulf States and Malaysia relating to sharing of underwriting surplus. Moreover, the primary section is dedicated to readdressing the foremost financial concepts related to the surplus such as underwriting surplus and return. Types of distribution for example, pro-rata and offsetting will also be deliberated in the light of equity principle advocated by the Scholars. The second section contracts with the main juristic opinions and policiesdefined against and in favour of surplus distribution. Legal principles such as possession or otherwise surplus next donation will be meticulously considered and reviewed in light of the present exercise of takaful operators. The final section agreements with a general outline of Shariahstrictures in relation to reasonable surplus distribution, followed by scrutiny of surplus distribution performs of a number of takaful operators. This article examines that, while it is powerfullysuggested to reallocate the surplus to the participants only, there are exceptional reasons supported by Shariah evidence.