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Washington state launches captives study

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captive insurance

Washington state Insurance Commissioner Mike Kreidler on Thursday sent an initial survey to about 5,000 businesses in the state asking if they use a captive insurance company.

The survey is part of a captives study requested by the state legislature and Governor Jay Inslee to determine how many organizations are not paying the state’s 2% insurance premium tax as required by law.

The information collected will help “inform, evaluate and formulate a taxation framework for captive insurance companies,” according to the Insurance Commissioner’s office.

Organizations that are failing to pay the premium tax will not be identified in the study, but it will show an overall projected amount owed, the Insurance Commissioner’s office said in a statement.

Commissioner Kreidler has suspended enforcement actions against captive insurers pending the results of the study.

Currently, captive insurers are not authorized under Washington state law. Efforts to make captive owners pay the state’s 2% premium tax have led to fines, settlements, legal challenges and proposed changes to state law.

The first captive owner challenged over nonpayment of the tax was Redmond, Washington-based Microsoft Inc. In August 2018, the company’s Arizona-based captive, Cypress Insurance Co., paid $573,905 in unpaid taxes and $302,915 in penalties and interest to settle with the state.

Study results will be reported to the state legislature next year. The Insurance Commissioner’s office and the state Department of Revenue have contracted with Seattle-based Milliman Inc. to conduct the survey and study.

Sixteen captives self-reported as part of an initiative set up by Commissioner Kreidler in December 2018. The state collected $4 million in previously unpaid premium taxes, fines and interest in an initial payment from two captives – those owned by Microsoft and Costco Wholesale Corp.