Final answer:
Insurance advertisements cannot imply that dividends or a divisible surplus are guaranteed, as this could mislead policyholders about the predictability of returns, which depend on multiple factors including company earnings and administrative costs.
Step-by-step explanation:
In the context of insurance advertisements, companies must be cautious about the language they use regarding dividends or divisible surplus. An advertisement may not imply that these are guaranteed because dividends or surpluses are contingent on various factors. These factors include investment income earned on reserves, administrative costs, and the company's overall profitability. Insurance companies must balance rates to cover claims, operational costs, and profits without promising specific returns to policyholders.
If an insurance company charges an actuarially fair premium to the entire group instead of pricing according to each subgroup's risk level, it might undercharge high-risk groups and overcharge low-risk ones. This could lead to financial instability and potential solvency issues for the insurer, as revenue may not sufficiently cover the higher risk claims.