how to manipulate data in a table

This is again out of my depth, therefore I need SQL Guru to help me again, Thanks guys in advance.

This is a fraction of a large client table with thousands of rows.

I was asked to write a script to detect Type: 40 and manipulate data below it.

the end results looks like: taking the same Key as Type 40. and assign correct sequence

Create table test1 (

[client] varchar(5) not null,

[startdate] datetime not null,

[enddate] datetime not null,

[policykey] int null,

[type] varchar(3) null,

[sequence] int null

)

Insert into test1 values (‘AAA’,’2007-12-12’, ‘2008-05-31’,85,’40’,1)

Insert into test1 values (‘AAA’,’2009-06-01’, ‘2010-05-31’,76,’40’,1)

Insert into test1 values (‘AAA’,’2010-06-01’, ‘2011-05-31’,null,null,null)

Insert into test1 values (‘AAA’,’2011-06-01’, ‘2011-06-27’,null,null,null)

Insert into test1 values (‘BBB’,’2008-10-01’,’2009-09-30’, 163, ‘40’, 1)

Insert into test1 values (‘BBB’,’2009-10-01’,’2010-09-30’, null,null,null)

Insert into test1 values (‘BBB’,’2011-10-01’,’2012-09-30’, 180, ‘40’, 1)

Insert into test1 values (‘BBB’,’2012-10-01’,’2013-09-30’, null,null,null)

Insert into test1 values (‘BBB’,’2013-10-01’,’2014-09-30’, null,null,null)