GMAT Critical Reasoning

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Source: PREP

Level: 3

When interest rates are high, insurance companies reduce the premiums they charge for many kinds of insurance policies. The reason is that insurance companies want to take in as much money as possible in premiums so that they can invest the money at high rates of interest. And premium reductions help achieve this objective, since __________.

Which of the following most logically completes the argument below?

  • A interest rates are likely to decrease when large amounts of money are available for loans
  • B smaller insurance companies are not able to amass enough money to take advantage of investing at high interest rates
  • C insurance companies can sell many more insurance policies if they charge lower premiums than they would if they left premiums unchanged
  • D an increase in the number of policies sold eventually leads to an increase in the number of claims that an insurance company has to pay
  • E the number of claims that insurance companies pay increases at a higher rate than does the number of policies that the insurance companies can sell at the lower premiums

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