The correct answer is: B. The actual experience is better than what it had assumed.
Surplus is the excess of assets over liabilities. It arises when an insurance company collects more in premiums than it pays out in claims. This can happen if the actual experience of claims is better than what the company had assumed when it set its rates. For example, if the company assumed that it would pay out $100 in claims for every $100 in premiums it collected, but it actually only pays out $90 in claims, then the company will have a surplus of $10.
The other options are incorrect because they would not result in a surplus. If the actual experience is worse than what the company had assumed, then the company will have a deficit. If the liabilities are under/over valued, then the company’s financial statements will be inaccurate, but this will not affect the company’s surplus. If the assets are valued in a conservative manner, then the company’s surplus will be understated, but it will still exist.