Washington Surplus Lines Broker Practice Exam 2025 - Free Broker License Practice Questions and Study Guide

The upper limit percentage for the Gross Change in Policyholders' Surplus is typically established to ensure that an insurance company maintains adequate financial stability and solvency. Maintaining policyholders' surplus is critical because it acts as a safety net for the company, helping to guarantee that claims can be paid out even in adverse situations.

A limit of less than 50% is often seen as a reasonable benchmark for managing risk while allowing for growth or fluctuations in surplus. This figure provides a buffer that helps prevent the company from becoming overly leveraged or financially unstable due to excessive changes in its surplus position. Therefore, the correct answer reflects a cautious approach to managing policyholders' surplus by allowing some room for changes without jeopardizing the financial health of the insurer.

Limits that are lower, such as less than 30%, less than 20%, or less than 10%, may be considered overly conservative or restrictive, potentially hindering the growth and operational flexibility of the insurance provider.