Sample Exam Q37
October 21st, 2011
Q. Why are the current year adjustments for Special surplus equal to 3 instead of 2?
A. This was a tricky one… there are 2 pieces to this:
-Looking at the adverse development ONLY, we have special surplus change of 3 (4 – 1)
-HOWEVER, the reinsurer has paid out more (46) than it received in premium (44+1=45). Remember, when the reinsurer pays out more than it receives, the insurer can convert some surplus from special surplus to unassigned surplus. So it will convert the difference (46-45=1), changing the increase in special surplus to 2 (from 3)