This is a case of Defender Assumption. To defend the conclusion that underpriced policies are not a net loss, we have to show that premiums+return > claims+expenses. For this we need premiums to invest till the time returns comes. This is our assumtion criteria. Just check the options.
Technically a given category of insurance policy is underpriced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an underpriced policy does not represent a net loss in every case.
The argument above is based on which of the following assumptions?
(A) No insurance policies are deliberately underpriced in order to attract customers to the insurance company offering such policies. [This is supporting one but it does not bring the relationship we are looking for. Incorrect
(B) A policy that represents a net loss to the insurance company is not an underpriced policy in every case. [This is just a repition of the main conclusion. Incorrect
(C) There are policies
for which the level of claims per year can be predicted with great accuracy before premiums are set. [We need to find info on underpriced policy. This is super set of policy which may or may not bring relevent relationship. Incorrect
(D) The income earned by investing premium income is the most important determinant of an insurance company's profits. [This is Shell Game fallacy
Remember, answer choices, which have MOST/PRIMARY REASON words are usually suspect of misleading incorrect answer choices.]
(E) The claims against at least some underpriced policies do not require paying out all of the premium income from those policies as soon as it is earned. [This is exactly what we are looking for. Correct