Description: In this paper, chapter V of the 1987 Valuation Actuary Handbook, the authors start with a discussion of how the recent economic environment with volatile interest rates has changed the valuation and surplus management process to one more dependent on actuarial judgment. In a discussion of surplus policy, the authors identify four “layers” of surplus which have been identified by scenario testing. These surplus layers, along with policy reserves, are based on specific invested assets. The paper discusses implications for the future and notes the actuary’s ability to advise management on surplus adequacy is a basic tool of risk management.