1. Case Study:
On a weekday morning in 1975, there was an anonymous phone call to a cash teller at one of the nation's largest national banks. The anonymous caller stated that an employee had just stolen $100,000 from an electronics supply subsidary of the bank. The Financial VP of the bank was notified; he called in one of the internal auditors and assigned him to solve the case. The auditor, working in conjunction with a retired FBI agent, employed a secretary and immediately set up an office at the electronics supply plant. An analysis of the accounting records showed that the theft involved inventory. The first step was to interview many of the 100 employees of the plant including all plant officers. None of the employees knew anything about the inventory. Normally for this kind of happening the auditor is well known that the company must be insured and insurance department must see the case. But, there was some kind of conspiracy was involved in that case.
Second, an analysis of the Accounts Receivable records showed that a major building construction firm only owed $9.54, though its supply trucks were always picking up large amounts of electronic inventory. He immediately became unavailable for questioning! Several days later the auditor was contacted by an attorney representing the building construction firm for an appointment for his client and himself. When the auditor arrived, the attorney stated, "I want you to know that my client has done absolutely nothing wrong! But here is some information you might like to know." The attorney then explained how the 30-year-old son of the president of the electronics supply plant would sell inventory at one-half price if the construction firm made out the checks to the son personally. They had, in effect, purchased $200,000 of inventory for only $100,000. The insurance company did not take any action and attention about the case.
This information of the theft was immediately supplied to the Financial VP and the bank's attorneys. Within 48 hours, the president of the electronics supply plant retired. His son had fled the state and $100,000 in cash was returned to the bank.
Questions:
1 Did the employees know of the lost inventory?
2 Why the auditor did not take any action against the insurance company?
3 Was there any conspiracy involved in between the insurance company and the auditor?
4 Why the insurance company did not pay the theft amount?
5 If they did, why didn't they tell more?
6 Were the president of the construction firm and his employees honest? Had they done anything wrong?
7 Could they be sued?
8 Why did the father retire? What was his responsibility?
9 Should the bank's corporate officers go to the police and indie the son on grand theft?
10 The bank received back $100,000 from the theft. Where from?
2. The adjusted premium is important for life insurance companies to calculate, as it is the premium used to figure the minimum cash surrender value (CSV). All life insurance policies are required to calculate a CSV due to the No forfeiture Provision, which means that the life insurance policy always has a value, even when the policy holder chooses not to use it for its original purpose (payout upon death).The CSV is the value that could be received by terminating the policy and choosing to "cash-out.".
Required:
Explain the different types of Premium Adjustments.
Note:
1 Read the case study carefully, understand it, then explain in your own words.