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# Technically a given category of insurance policy is under

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

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15 Jan 2006, 07:16
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Technically a given category of insurance policy is under priced 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 under priced 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 under priced 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 under priced 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 under priced policies do not require paying out all of the premium income from those policies as soon as it is earned.
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15 Jan 2006, 07:36
(D) The income earned by investing premium income is the most important determinant of an insurance company?s profits.
Director
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15 Jan 2006, 15:26
I think its E.. since the conclusion speaks of every case...
Director
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15 Jan 2006, 22:07
E for me..

(E) The claims against at least some under priced policies do not require paying out all of the premium income from those policies as soon as it is earned.

Lets negate it..

(E) The claims against at least some under priced policies require paying out all of the premium income from those policies as soon as it is earned.
If the company has to pay the income that it earned in claims then the insurance is underpriced , because the premises was that co can earn some profits from investing the premium..
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16 Jan 2006, 01:01
I think its D
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Director
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16 Jan 2006, 07:00
conclusion says -
Therefore, an under priced policy does not represent a net loss in every case.

That means in at least some case the premiums are invested of being used for claims. So E is the right choice.
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16 Jan 2006, 07:05
D is certainly out because the usage of 'most' is typically suggest extreme position and is wrong answer on GMAT
Manager
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16 Jan 2006, 12:59
Another vote for E
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16 Jan 2006, 17:27
This is sure E as if the claims are not payably immediately only can there be investment !
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17 Jan 2006, 08:39
Andy gr8 explanation!
All of you guys good job the OA is E
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17 Jan 2006, 08:39
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# Technically a given category of insurance policy is under

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