Did Insurance Company K have more than $300 million in total net profi

Question

Did Insurance Company K have more than $300 million in total net profits last year?

(1) Last year Company K paid out $0.95 in claims for every dollar of premiums collected
(2) Last year Company K earned a total of $150 million in profits from the investment of accumulated surplus premiums from previous years

ID: 700290

mikemcgarry · Accepted Answer

Dear AbdurRakib , I'm happy to respond. :-)

This question is odd, in that it's less about the math and more about understanding the business situation. I have not seen too many questions with this slant. Statement #1: they pay out $0.95 in claims for every dollar in premiums collected. That would leave 5 cent free and clear, unless they have other expenditures (payroll, utilities, facility costs, etc.) Even if we knew the total amount in premiums, we wouldn't know how much profit. Statement #2: this tells about the " investment of accumulated surplus premiums from previous years ." Presumably, this company also sold some new premiums last year. Thus, the total revenue from premiums is unknown. Even if we combine the statements, we are far from being able to answer the prompt question. We have no way to know the full dollar amount of premiums last year, and even if we did know this, we would know the dollar amount paid out in claims, but we wouldn't know the other expenses that would cut into profit. There is no way to give any sort of answer to the prompt question. Everything is insufficient. Answer = (E) Does all this make sense? Mike :-)

AnubhavK · Answer

Posting the OE for this:

Letting R and E, respectively, represent the company’s total revenue and total expenses last year, determine if R – E > $300 million.

(1) This indicates that, for $x in premiums collected, the company paid $0.95x in claims, but gives no information about other sources of revenue or other types of expenses; NOT sufficient.

(2) This indicates that the company’s profits from the investment of accumulated surplus premiums was $150 million last year, but gives no information about other sources of revenue or other types of expenses; NOT sufficient.

Taking (1) and (2) together gives information on profit resulting from collecting premiums and paying claims as well as profit resulting from investments from accumulated surplus premiums, but gives no indication whether there were other sources of revenue or other types of expenses.

Thus, 'E'

MHIKER · Answer

(1) No information about revenue and other costs; Insufficient.

(2) Profit from the investment is given but no information about other profit from other sources and cost is given. Insufficient.

Using Both:

Profit from the investment and cost of claims are given but no profit from other sources and cost are still given. Insufficient.

The answer is E.

ScottTargetTestPrep · Answer

Solution:
 
We need to determine whether Insurance Company K had more than $300 million in total net profits last year.

Statement One Alone:
 
Without knowing the total number of dollars of premiums Company K collected last year, we can’t determine whether Insurance Company K had more than $300 million in total net profits last year. Statement one alone is not sufficient.

Statement Two Alone:
 
This does not tell us anything about the profits earned on the premiums collected last year. Statement two alone is not sufficient.

Statements One and Two Together:
 
Even with the two statements, we still don’t know the total number of dollars of premiums Company K collected last year, and therefore, we can’t determine whether Insurance Company K had more than $300 million in total net profits last year. Both statements together are still not sufficient.

Answer: E

MalachiKeti · Answer

Statement #1: they pay out $0.95 in claims for every dollar in premiums collected. That would leave 5 cent free and clear, unless they have other expenditures (payroll, utilities, facility costs, etc.) Even if we knew the total amount in premiums, we wouldn't know how much profit.

If they said no other expenditure took place and total premium was given we could have then found out the net profit right?
$1 premium - 0.05 cents profit, so for x total premium profit can be calculated

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Did Insurance Company K have more than $300 million in total net profi

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Did Insurance Company K have more than $300 million in total net profi

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