SB 6331 — Concerning captive insurers.

S-6031.3SUBSTITUTES-5264.1SENATE SENATE BILL 6331State of Washington66th Legislature2020 Regular SessionBySenateSessionBySenators Financial Institutions, Economic Development & Trade (originally sponsored by Senators Mullet and Wilson, L.)READL.AN FIRST TIME 02/07/20.AN ACT Relating to captive insuranceinsurers; and independently procured commercial insurance;

amending RCW 48.14.020, 48.14.095, 48.15.160, 82.04.320, and 48.14.090;82.04.320;

prescribing penalties;

The legislature finds that creating a framework for Washington corporations and public institutions of higher education to manage their risks through captive insurers will facilitate the growth and safety of those entitiesbusinesses and protect the public interest.

The legislature further finds that captive insurance promotes prudent risk management and provides access to insurance and reinsurance markets that may not be available to these Washington entitiesbusinesses otherwise.

This chapter may be known and cited as the Washington captive insurer act.NEW SECTION.  Sec.

3.

"Affiliate" also means any person that holds an insured interest because that person has or had an employment or sales contract with an insured person.(2) "Control" means possession of the power to direct the management and policies of an entity through ownership of voting securities, by contract, or otherwise.(3) "Exempt commercial purchaser" has the same meaning as provided in RCW 48.15.010.(4) "Washington captive insurer" means an insurance company with the following characteristics:(a) It is wholly owned by a corporation orthat ahas publicits institutionprincipal place of higherbusiness educationin asWashington definedand inis RCWnot 28B.10.016,itself that:(i)an Hasinsurer;(b) itsIt principalinsures placerisks of businessthe inparent Washington;(ii)corporation, Isthe notparent itselfcorporation's another insurer;affiliates, or both;

and(iii) Has total assets worth at least twenty-five million dollars as verified by audited financial statements prepared by independent certified accountants;(b) It insures risks of the parent corporation or institution, the parent corporation's or institution's other affiliates, or both;

3.

(1) The ability to independently procure insurance in this state is limited to persons who qualify either as an exempt commercial purchaser or as an affiliate of a Washington captive insurer.(2) Prior to independently procuring insurance in this state, a person other than an affiliate of a Washington captive insurer must establish that they qualify as an exempt commercial purchaser.

To establish that a person qualifies as an exempt commercial purchaser, the person must file a form, in the format prescribed by the commissioner, attesting that the person qualifies as an exempt commercial purchaser and providing additional information as required by the commissioner.

The commissioner may request records to confirm that the person qualifies as an exempt commercial purchaser.(3) Every exempt commercial purchaser whose home state is Washington state and who procures, causes to be procured, continues, or renews insurance with an unauthorized insurer, including a person or self-insurer who procures or continues excess loss, catastrophe, or other insurance, upon a subject of insurance that is resident, located, or to be performed in this state, other than insurance lawfully procured through a surplus lines broker under chapter 48.15 RCW, must within sixty days after the date the insurance was bound or the effective date of the insurance, whichever is later, file a report with the commissioner in a form prescribed by the commissioner.

The report must show the name and address of the exempt commercial purchaser, name and address of the unauthorized insurer, a general description of the coverage, the binding or effective date, the policy number, the amount of premium currently charged, and additional pertinent information required by the commissioner.

The exempt commercial purchaser must attach the policy declaration pages to the report.(4) Persons who qualify as exempt commercial purchasers may independently procure unauthorized insurance that is properly classified as property insurance under RCW 48.11.040 or general casualty insurance under RCW 48.11.070.NEW SECTION.  Sec.

(1) AnWithin exemptone commercialhundred purchasertwenty must,days onafter or before the firsteffective daydate of Marchthis ofsection, each year, file with the commissioner a verifiedWashington statementcaptive ofinsurer all independently procured insurance transacted during the preceding calendar year.(2) The statement must beregister inwith a form and format as prescribed by the commissionercommissioner. and must show:(a) Aggregate of net premiums;

and(b)Upon Additionalfurnishing informationevidence asof requiredgood bystanding thein commissioner.(3)its Thisstate sectionof doesdomicile notand applypaying toa unauthorizedtax propertyof andtwo casualtythousand insurancefive independentlyhundred procureddollars, bya anWashington insuredcaptive wheninsurer theis insured'sentitled hometo statereceive is a statecertificate otherof thancaptive thisauthority state,as ora toregistered insurance procured from Washington captive insurers.NEWinsurer. SECTION.  Sec.

No other documents, deposits, or payments may be required to obtain this certificate.(2) A registered Washington captive insurer may renew its certificate of captive authority for successive periods of twelve months each by paying a tax not to exceed two thousand five hundred dollars for each such period.(3) A registered Washington captive insurer is not liable for premium tax.

No direct placement, self-procurement, or similar tax may be levied on the payment of premiums to a registered Washington captive insurer.NEW SECTION.  Sec.

(1) OnA orregistered beforeWashington thecaptive firstinsurer daymay ofprovide Marchinsurance of each year, an exempt commercial purchaser must remit to thea stateparent treasurercorporation throughthat thehas commissionerits aprincipal taxplace on the premiums, exclusive of sumsbusiness collectedin tothis coverstate, federal and state taxes and examination fees, on independently procured insurance subject to tax transacted by the exemptparent commercialcorporation's purchaserother duringaffiliates, theor precedingboth.(2) calendarA year,registered asWashington showncaptive byinsurer themay annualinsure statementrisks filedof withits theaffiliates commissioner, and atobtain theor sameprovide ratesreinsurance asfor arerisks applicableinsured toin the premiums of authorized foreign insurers under this code.state.Sec.

The tax when collected must be credited to the general fund.(2) For property and casualty insurance other than industrial insurance under Title 51 RCW, when this state is the exempt commercial purchaser's home state, the exempt commercial purchaser must pay premium taxes in accordance with the following:(a) If the independently procured insurance covers risk or exposures located inside of the United States, its territories, or both, the tax so payable must be computed upon the entire premium under subsection (1) of this section, without regard to whether the policy covers risk or exposures that are located in this state;

and(b) If the independently procured insurance covers risk or exposures located outside of the United States and its territories, no tax under subsection (1) of this section is due or payable for the premium properly allocable to the risks and exposures located outside the United States and its territories.(3) This section does not apply to insurance procured from Washington captive insurers.NEW SECTION.  Sec.

(1)RCW An48.14.020 exemptand commercial2016 purchaserc who133 failss to1 fileare aeach reportamended asto requiredread byas thefollows:(1) commissionerSubject into sectionother 3(3)provisions of this actchapter, iseach subjectauthorized toinsurer aexcept onetitle thousandinsurers dollar fine, per violation.(2) If an exempt commercial purchaser fails to file the annual statement and failsregistered toWashington remitcaptive theinsurers taxas provideddefined byin section 53 of this act,act byshall on or before the lastfirst day of theMarch monthof ineach whichyear thepay taxto becomes due, the exemptstate commercialtreasurer purchaserthrough must pay the penaltiescommissioner's andoffice interesta providedtax inon RCWpremiums. 48.14.060.

The tax may be collected by distraint, or the tax and fine may be recovered by an action instituted by the commissioner in any court of competent jurisdiction.

Any fine collected by the commissioner must be paid to the state treasurer and credited to the general fund.(3) This section does not apply to affiliates of Washington captive insurers.NEW SECTION.  Sec.

7.

(1) Within one hundred twenty days after the effective date of this section or, if later, within one hundred twenty days after first issuing a policy that covers Washington risks, a Washington captive insurer must register with the commissioner.

Upon furnishing evidence of good standing in its state of domicile and paying a tax of two thousand five hundred dollars, a Washington captive insurer is entitled to receive a certificate of captive authority as a registered Washington captive insurer.

No other documents, deposits, or payments may be required to obtain this certificate.(2) A registered Washington captive insurer may renew its certificate of captive authority for successive periods of twelve months each by paying a tax not to exceed two thousand five hundred dollars for each such period.(3) A registered Washington captive insurer may provide insurance to a parent corporation that has its principal place of business in this state, to the parent corporation's other affiliates, or both.(4) A registered Washington captive insurer may insure risks of its affiliates and obtain or provide reinsurance for risks insured in this state.NEW SECTION.  Sec.

8.

(1) On or before the first day of March of each year, a registered Washington captive insurer must remit to the state treasurer through the commissioner a tax in the amount of two percent of the premiums, exclusive of returned premiums and sums collected to cover federal and state taxes and examination fees, for insurance directly procured by and provided to its parent or another affiliate for Washington risks during the preceding calendar year.

The tax when collected must be credited to the general fund.(2) For the purposes of this section, "Washington risks" means the share of risk covered by the premiums that is allocable to this state, based upon where the underlying risks are located or where the losses or injuries giving rise to covered claims arise.

The captive insurer may use any reasonable method of determining such an allocation, including actuarial analysis or use of a proxy such as sales, property value, or payroll.

The captive insurer must share their methodology and relevant analysis in determining their allocation with the commissioner.

Whether paid directly or by reimbursement, neither the timing nor the nature of a captive insurer's payment may be deemed to reflect, create, or constitute Washington risks.

"Washington risks" do not include any risks covered by industrial insurance under Title 51 RCW.(3) If a registered Washington captive insurer fails to remit the tax provided by this section by the last day of the month in which the tax becomes due, the registered Washington captive insurer must pay the penalties and interest provided in RCW 48.14.060.

The tax may be collected by distraint, or the tax and fine may be recovered by an action instituted by the commissioner in any court of competent jurisdiction.

Any fine collected by the commissioner must be paid to the state treasurer and credited to the general fund.(4) A Washington captive insurer that registers with the commissioner as provided in section 7 of this act may not be deemed to be an unauthorized insurer for any period preceding or following such registration.

A registered Washington captive insurer is exempt from sanctions set forth in RCW 48.14.095, for violations of RCW 48.05.030(1), 48.14.060, or 48.15.020 regardless of when such violations are alleged to have occurred.(5) Taxes on premiums may not be imposed or collected on a Washington captive insurer for any period before January 1, 2010, and all taxes must be limited to a Washington captive insurer's Washington risk.(6) For periods beginning January 1, 2020, a registered Washington captive insurer is subject to the sanctions in subsection (3) of this section.(7) This section does not apply to institutions of higher education as defined in RCW 28B.10.016.NEW SECTION.  Sec.

9.