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.