Critical Reasoning

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.(Surely not the answer since no mention of 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.

The assumption here should link insurance company--> net loss in every case.

Only B does this linking. Hence B should be it..

Please let me know if OA is "B"!!

ketkoag wrote: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.(Surely not the answer since no mention of 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.

My choice would be E here. Argument says that premium can be invested to get good returns in the future. What if the policy holder claim for the insurance and company has to pay out all the premium back. In that case policy company would be left with no premium amount to invest and argument will fall apart..

OA please

IMO B too
Rules out reverse causal relationship.

I am confused between B and E but would go with B because The argument is not causal.

Hence Y is not caused by X might not be true here.


E...the explanation is -

expense + OT - income from premum = underpriced policy.

From E,

If the claims against at least some under priced policies do require paying out all of the premium income from those policies as soon as it is earned, then

expense + OT >>income from premium because interest earned will be given out as claims

Hence E

And that would be loss

IMO A.

If policies are underpriced delibrately the conclusion " The Underpriced policy doesn't represent a net loss in every case " falls apart.


Thanks
Raama

Confused between A and E.....IMO - E.

B is the opposite what is stated in the argument.

ketkoag wrote: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.(Surely not the answer since no mention of 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.

E is the answer.If the premium incomes are paying out as soon as they are received,then the policy represents a net loss. Simple as ABC.

Hi ketkoag

Can U please post the OA and OE?

rahulg83 wrote:Hi ketkoag

Can U please post the OA and OE?

OA is [spoiler][E][/spoiler]

success1111 wrote:E is the answer.If the premium incomes are paying out as soon as they are received,then the policy represents a net loss. Simple as ABC.

ketkoag wrote: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.

1. By definition, underpriced = claims+expenses > premium.
2. But, interest on premium is not factored in to the above.

My answer: D. claims, expenses and premium have been priced in. therefore only interest remains as the determinant of profits/loss. I don't like that it uses "most important" but it's the only answer choice that even mentions interest.

thetrystero wrote:

ketkoag wrote: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.

1. By definition, underpriced = claims+expenses > premium.
2. But, interest on premium is not factored in to the above.

My answer: D. claims, expenses and premium have been priced in. therefore only interest remains as the determinant of profits/loss. I don't like that it uses "most important" but it's the only answer choice that even mentions interest.

darn, i knew D didn't sound right. E it is.

@ketkoag
whats the source of question ?

lav wrote:@ketkoag
whats the source of question ?

IMO E. Apply negation test on E & it will weaken the conclusion. Can we have the OA please?

sorry for the delay, guys..
OA is E