A very large multinational construction equipment firm is considering creating a captive insurance company. Aman, the companys director of risk assessment, has requested a meeting to discuss the positives and negatives of creating a captive.

Discuss the items below with Aman.

a. Why would an organization decide to establish a captive? (5 marks)

b. What are five financial benefits to a captive and its owners? (5 marks)

c. Why might a company with its own captive still want to transfer a part of its exposures to a traditional commercial insurer? (5 marks)