Washington State Office of the Insurance Commissioner
In September 2019, the Washington State Insurance Commissioner (OIC) Mike Kreidler made captive insurance a legislative priority for 2020.
At the time, Washington State law provided no statutory framework to allow the formation of captive insurance companies within the state.
During 2019, the OIC began investigating Washington state-based companies who had formed their own captive insurance companies. These companies have been cooperating in the investigations by the OIC and worked with the OIC on legislation for 2020.
In January, the OIC introduced its draft legislation on captive insurance. The proposed legislation on captive insurance, which was introduced to the Washington House of Representatives on 13 January, concerns independently procured insurance and the application of the state’s insurance premium tax for both in-state and out-of-state risk.
The legislation will create a statutory framework for how captive insurance companies can be formed by Washington state companies, who can form them and what taxes will be paid by them to Washington state.
In January this year, Kreidler ordered unauthorised insurers Olympic Casualty Insurance and ASA Assurance to stop insuring risk in Washington state for their parent companies Starbucks and Alaska Air Group.
In December 2019, Kriedler ordered Olympic Casualty Insurance, a captive insurer for Starbucks, to pay $22.8 million in unpaid premium taxes, interest, and penalties and a $1.1 million fine.
To date, 16 captives have self-reported and two captives have paid $2.9 million in unpaid premium taxes and $1.4 million in fines, tax penalties and interest to Washington state.
Kreidler reached a settlement of $876,820 with Cypress, a captive insurer for Microsoft Corporation in August 2018.
In addition, the insurance commissioner reached a settlement of $3.6 million with NW Re Limited, a captive insurer for Costco Wholesale Corporation in March 2019.
Maria Ward-Brennan speaks to the Washington State Insurance Commissioner Mike Kreidler to discuss the legislation and his opinions on captive insurance.
What are your thoughts on the US captive insurance market?
The captive insurance market in the US has seen exponential growth. The OIC bill would create a legal framework, through independent procurement, that would allow large and fiscally solid companies to procure property and casualty insurance from insurers, not in the admitted market.
This could also be done through the creation of their own captive insurance companies if they choose.
How will the new captive insurance legislation work and what will the legislation include?
OIC’s bills were filed prior to the beginning of the current legislative session and the hearings were on the 30 January.
The bills create a framework to allow independent procurement of insurance from insurers not in the admitted market, including captives. It would have such insurance purchases be registered with the OIC with a 2 percent premium tax applied.
How will implementing captive insurance legislation benefit the state?
The legislation would create a legal framework to allow large companies to form and use captives. That framework currently does not exist in Washington.
It would also increase revenue to the state general fund by applying the 2 percent premium tax.
In addition, the legislation would ensure a level playing field and continue Washington’s consistent application of the 2 percent premium tax across all types of insurance. The legislation is in line with other states.
Do you have an update on the latest captive insurance legislative hearing that took place on 30 January?
We presented our views about a fair and reasonable approach to allow businesses to establish and use captive insurers in our state and pay the 2 percent premium tax due from authorised insurance operations.
It should also be noted that we made our legislative proposal at the request of the businesses that want to establish captives in our state.
Do you think Washington will find it challenging to attract captives after banning orders were issued within the state?
OIC’s legislation would not ban captives. Instead, it would create a legal framework to allow their use. However, the bill would not make Washington a captive domicile state. Washington is not a captive domicile state, so captive insurers cannot be set up in this state. Parent companies in this state can form captive companies and have them domiciled in other states. These parent companies may then use a surplus line broker to procure insurance from their insurance companies and pay their taxes.
