Microsoft’s captive insurer, Cypress Insurance, will pay $876,820 to the Washington state Insurance Commissioner, Mike Kreidler, as part of a settlement agreement with the state.
The $876,820 sum is made up of $573,905 in unpaid premium taxes and $302,915 in interest and penalties.
In May, the State of Washington Office of the Insurance Commissioner issued a cease and desist order requiring the captive to stop transacting insurance without a license and to pay tax on its written premiums.
Cypress is domiciled in Arizona but its sole insured, Microsoft and its subsidiaries, is based in Redmond, Washington.
Between 2008 and 2018, the captive collected over $91 million in written premium from its insured.
Insurance companies are required by state law to pay a two percent tax based on their written premiums, a revenue which is sent to the state general fund to pay for a variety of programmes.
According to the Office of the Insurance Commissioner, Cypress didn’t hold a certificate of authority to transact insurance in Washington State, didn’t hold a Washington state surplus line broker’s licence to place non-admitted insurance in the state, nor is insurance coverage provided by the captive placed through a surplus line broker licensed in the state.
Prior to 2008, the insurance arrangement between Cypress and Microsoft complied with state insurance laws.
As of 1 July, Cypress obtained new policies through a surplus line broker.
Kreidler said he was pleased with the outcome of the settlement.
He commented: “Cypress is now complying with Washington state law, and the state will receive some of the money owed.”
“Captives are a grey area in state law and this is the first case where we’ve tested them.”
According to Kreidler, his office will now turn their attention to other captives doing business in Washington state.
He said: “I encourage captives insuring risks in Washington–and that want to be proactive in the interest of fairness–to contact my office to start conversations about their portfolios.”
“I want to make sure that all insurers pay their fair share as part of doing business here.”