Which statement about premium deficiencies being rare is true?

• A. Most policies charge sufficient premium to cover expected losses & expenses
• B. A particular segment within a group that has a deficiency may be offset by the surplus of another segment
• C. Both statements are true
• D. Neither statement is true

Answer: (C)

Premium deficiency is when the expected future benefits and expenses exceed the resources available from premiums and reserves. In practice, deficiencies are rare because pricing is set so that premiums cover expected losses and expenses, including appropriate margins. At the same time, in a group with multiple segments, a segment that runs a deficiency can be offset by the surplus from another segment, so the overall position may still be adequate. Put together, pricing adequacy and cross-segment offsetting explain why premium deficiencies tend to be rare, making both statements true.