STRATEGIC SURPLUS MANAGEMENT AND SOLVENCY SUSTAINABILITY: EVIDENCE FROM SAUDI ARABIA AND THE MALAYSIAN TAKAFUL FRAMEWORK

Abstract

This research investigates how surplus distribution policies influence financial solvency sustainability within Takaful insurance markets, through a comparative evaluation of Saudi Arabia’s cooperative insurance framework and Malaysia’s Islamic Takaful system. The study is situated within the context of major regulatory and accounting developments, notably the creation of the Saudi Insurance Authority, the introduction of IFRS 17, and the implementation of a risk-based capital (RBC) supervisory regime. Employing firm-level panel data drawn from publicly listed Takaful operators in Saudi Arabia and Malaysia for the period 2020 to 2024, the analysis utilises structural equation modelling (SEM) to estimate both the direct relationship between surplus distribution practices and solvency outcomes, and the mediating influence of enterprise risk management (ERM). The results reveal that the Saudi framework provides comparatively stronger solvency resilience, primarily attributable to more conservative surplus distribution practices and tighter regulatory control, whereas the Malaysian framework demonstrates greater flexibility in surplus allocation, supported by stronger capital buffers and more developed governance mechanisms. Overall, the evidence highlights that regulatory architecture, accounting standards, and surplus management practices collectively play a decisive role in shaping solvency performance within Takaful insurance systems.