This is really tough one. Under priced insurance policy = claims against it plus expenses associated with it exceed total income from premiums, think as company not consumer. I started thinking this question as consumer and could not make things. So for same period if company invest same base price, then it can get returns on it. and may be that is profitable for them. now these returns will come in time, some years. longer the duration, more profitable company will be.

Pre-thinking: We need to find the assumption for which Conclusion holds true. let say that someone have an insurance and with in few days or in a month someone had claim for it. will company can have any kind of profit from it. What if all start doing this, company will not even survive. This should be the assumption.

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. ---- that is a bad move.

(B) A policy that represents a net loss to the insurance company is not an under priced policy in every case. --- might be true but negation will not hold true.

(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set. ---- So ? irrelevant

(D) The income earned by investing premium income is the most important determinant of an insurance company’s profits. ---- is that only one. What if no claim made ever? many loop holes in this choice.

(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. --- same on the line of pre-thinking.