Objective: demonstrate knowledge in captive insurers, in relation to enterprise risk management. You are the risk manager...

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Operations Management

Objective: demonstrate knowledge in captive insurers, inrelation to enterprise risk management.
You are the risk manager of for Paymore ShoeSource, a large,publicly traded, and expensive shoe store chain. Your boss tellsyou that you that Paymore is planning to set up a broad insurancecaptive. Overhearing the conversation, a coworker who is notfamiliar with captives interrupts the conversation with a number ofquestions. Please answer the following questions for thecoworker.
Generally, why would a large company such as Paymore (that isassumed to be risk neutral) purchase insurance?
What is an insurance captive?
Why might the company want to insure through a captive ratherthan through a traditional insurer? List two reasons.
a)
b)
What is the structure of a â€œbroadâ€ captive? Please use a diagramto illustrate your answer.
Based on the structure just described, does a broad captiverepresent a contract of insurance defined by the IRS? Discuss therequirements of an insurance contract and argue whether or not abroad captive meets these requirements.

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Answer 1Insurance captive is an insurancecompany that is wholly controlled by its insureds who are also theowner of this insurance company In other words it is the fullyowned insurance subsidiary that is meant to protect the parentcompany See Answer

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