Washington doubles down on 'unlawful' captives following Microsoft settlement
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The Washington State Office of the Insurance Commissioner has issued a cease & desist order against Microsoft to stop using its Arizona-domiciled captive, Cypress Insurance, to directly insure its parent.
Issued on May 9, the Insurance Commissioner alleges that Microsoft had been writing direct insurance policies through its captive without the use of a fronting company and without holding a certificate of authority. The order also states Cypress Insurance Company has been noncompliant with surplus lines laws.
In Washington State there are no self-procurement laws, and all captives covering insurable interests in the state need fronting in order to not break the law.
Order 18-0220 states that Cypress Insurance Company had placed unauthorised insurance with a Washington-domiciled insured without holding a Washington State surplus line broker license, and failing to timely remit a 2 percent premium tax to the state of Washington on premiums earned.
Captive International caught up with Andy Barile, CEO of Alternative Global Risk Management, who said this development has major implications for captives writing direct insurance policies without fronts.
"It has tremendous implications because one it's Microsoft. And two it's an attack on the direct insurance policies that are being written by these captive insurance companies that are not using the front companies any longer," said Barile. "The captive owner has to realise that they really are in the insurance business now."
In this particular case, Barile explains that complications arise out of the fact the captive is licensed in Arizona, but is writing its policies in the state of Washington, which according to Washington is violating the surplus lines insurance laws.
"You've got one state insurance department versus another," he says.
Barile suggested that there is a wider issue of oversight with the captive, and how Washington’s surplus lines laws were not picked up on.
“The big issue is that they are going to start challenging the fact the Microsoft Corporation can dictate the prices to the Microsoft captives because there’s no front arguing that the price is wrong,” Barile added.
“How many Fortune 500 captives are doing the same thing? How many are writing direct policies in the state of Washington and not paying the surplus lines tax?”
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Microsoft, Cypress Insurance Company, Arizona, Cease & desist, Washington State Office of the Insurance Commissioner, Legislation, North America