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THE REVOLUTION IN INSURANCE: SURPLUS DECLARATION PROCESS

Basics of Takaful

Takaful means joint guarantee for mutual assistance within a group. The mutual protectionprovided through Takaful contains elements of cooperation, togetherness and sharedresponsibility. Its main objective is the same as that of conventional insurance to protectagainst unforeseen financial loss but the mechanism used is different. Unlike a conventionalinsurance company, which acts as a risk taker and assumes the risk on behalf of the insured, aTakaful operator acts as a risk manager. There should not be any transfer of risk from thosebeing protected.

Participants (Policyholders) come together to pool their risk in a Takaful fund and have aninterest in the performance of the fund. They participate in the Takaful fund by contributingtabarru (Donations) into the Takaful fund that is used to provide financial compensation toparticipants if predefined adverse events occur.

As parcel members of the Takaful fund, the participants also share in the profits of the Takafulfund through a process referred to as Surplus distribution.

Surplus Distribution

This refers to the process of sharing the underwriting profits of the Takaful fund with the

participants.

In the event that the Takaful fund has a profit at the end of year after the Re-Insurance, Claims

and other policyholder benefits are met, such profit is distributed among all eligible participants

who have not made claims during the year. The process of sharing the profits among the

participants is called Surplus distribution.

Surplus distribution is the beauty of Takaful and a testimony to shariah compliance,

fairness and equity of the process.

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ELIGIBILITY FOR SURLUS SHARE

To be eligible for surplus share, a client must:

1. Have taken a policy with Takaful Insurance of Africa during the year 2011.

2. Not have any outstanding premium (debt) with Takaful Insurance of Africa.

3. Not have made a claim on the policy.

4. Have a surplus share that is more than 1,000/-.

NB: Kshs.1,000/- is the minimum surplus share applicable.

THE PROCESS OF SURPLUS DISTRIBUTION

1. Prepare a register of all policyholders for the underwriting year 2011.

2. Categorize and eliminate all policies with claims.

3. The above process of eliminating the policies with claims is referred to as selectivemethod.

4. Calculate the requisite RESERVES as required by the regulatory authority as a cushion

for the funds future.

5. Prepare surplus on the ratio of the participants contribution to the fund and the

available surplus.

6. Obtain approval from the Shariah Supervisory Council (SAC) and the Insurance

Regulatory Authority (IRA).

7. Distribute the surplus among all eligible participants an in accordance with Takaful

promise to the clients.

Surplus Calculation Formulae

SurplusCalculation:

Participantscontribution

xUnderwritingProfitGross Written

contribution