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# Technically a given category of insurance policy is

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Intern
Joined: 01 Sep 2011
Posts: 1

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Technically a given category of insurance policy is [#permalink]

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06 Sep 2011, 22:44
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Difficulty:

(N/A)

Question Stats:

58% (01:37) correct 42% (01:32) wrong based on 76 sessions

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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.
(B) A policy that represents a net loss to the insurance company is not an underpriced policy in every case.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set.
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits.
(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.
[Reveal] Spoiler: OA

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VP
Joined: 24 Jul 2011
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GMAT 1: 780 Q51 V48
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07 Sep 2011, 05:23
Clearly (E)

If the premium income is paid out as part of claims as soon as the premium is received, then the premium cannot be reinvested, which would undermine the conclusion.
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Manager
Joined: 04 Jun 2011
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07 Sep 2011, 08:02
yup... was an easy one... E

syr: why do you think its debatable?

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Manager
Joined: 27 Dec 2007
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07 Sep 2011, 12:27
E

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Manager
Joined: 15 Nov 2010
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07 Sep 2011, 18:25
syr wrote:
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.
(B) A policy that represents a net loss to the insurance company is not an underpriced policy in every case.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set.
(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits.
(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 was a tough one. Chose E because it connects the missing link between premium and under priced policy.

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Intern
Joined: 20 Apr 2013
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03 May 2013, 11:30
GyanOne wrote:
Clearly (E)

If the premium income is paid out as part of claims as soon as the premium is received, then the premium cannot be reinvested, which would undermine the conclusion.

I could not understand why they have mentioned here "atleast"

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Manager
Joined: 14 Dec 2012
Posts: 79

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Location: United States
Re: Technically a given category of insurance policy is [#permalink]

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03 May 2013, 11:36
i guess it is because we are talking of general set..." Therefore, an underpriced policy does not represent a net loss in every case." means in some cases,it could still result in a loss.. so in the answer options..we take "atleast some of the policies" ...to prove the point that there is no net loss in some cases at least..

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Re: Technically a given category of insurance policy is   [#permalink] 03 May 2013, 11:36
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