Here is how I would REPHRASE the argument:

Technically, for an insurance company to make money, the following must be true:

premiums > claims + associated expenses (1)

However, in actuality their income is not only made up of premiums, but investment income from those premiums.

So, they'll make money if:

premiums + interest > claims + associated expenses (2)

In short, statement (1) does not accurately reflect the situations in which the insurance company will make or lose money; statement (2) does.

Hope that helps,

Tatiana

Okay..we are dealing with two different things. One is a UNDERPRICED POLICY another is LOSS.

and there are conditions for both to be true

1)a policy is UNDERPRICED if...

premiums <claims>does not necesssrily mean---->LOSS(2)

yet not clear...

Let me try to illustrate with an example. Suppose you want to sell me your car. You paid $500 for it (that's your expense), but you sell it to me for $400. Technically, I the car was UNDERPRICED.

However, let's say that you went and invested my $400 and made 25% interest. Now you've got $500 in your hand. So, even though the car was UNDERPRICED, you did not LOSE money.

A policy is UNDERPRICED if the insurance company sells it below the costs they incur insuring the person (claims and costs.) However, if investment income can make up for the amount by which the claim is UNDERPRICED, then there won't be a LOSS.

Hope that helped further,

Tatiana