PSSB 5315 Mullet — An Act Relating to Captive Insurance

Summary

PSSB 5315 by Mullet (S-0594.1/21), an act relating to captive insurance. The bill amends RCW 48.14.020, 48.14.095, 48.15.160, 82.04.320, and 48.14.090 and adds a new chapter to Title 48 RCW. It states legislative findings on captive insurers and says the legislature does not intend to make Washington a captive domicile state. An eligible captive insurer must register with the commissioner, with a fee of $2,500, and must remit a tax of two percent of premiums by the first day of March each year. The bill declares an emergency and takes effect immediately.

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Full text

                                                            PSSB 5315
                                                            Mullet




 1       AN ACT Relating to captive insurance; amending RCW 48.14.020,
 2   48.14.095, 48.15.160, 82.04.320, and 48.14.090; adding a new chapter
 3   to Title 48 RCW; creating a new section; prescribing penalties; and
 4   declaring an emergency.


 5   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:


 6       NEW SECTION.    Sec. 1.   The legislature finds that creating a
 7   framework for Washington private entities and public institutions of
 8   higher education to manage their risks through captive insurers will
 9   facilitate the growth and safety of those entities and protect the
10   public interest. The legislature further finds that captive insurance
11   promotes prudent risk management and provides access to insurance and
12   reinsurance markets that may not be available to these Washington
13   entities otherwise. The legislature believes that encouraging the use
14   of captive insurance will support those who rely upon the strength
15   and stability of employers in this state.
16       The legislature does not intend by this act to make Washington a
17   captive domicile state. Rather, the legislature is establishing a
18   framework   for  registration   by   captive  insurers   that  insure
19   Washington-based entities and are licensed by the jurisdictions in
20   which they are domiciled.


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 1       NEW SECTION.    Sec. 2.     The definitions in this section apply
 2   throughout   this  chapter    unless  the   context   clearly   requires
 3   otherwise.
 4       (1)   "Affiliate"   means    an  entity   directly   or   indirectly
 5   controlling, controlled by, or under common control with another
 6   entity, such as a parent or a subsidiary corporation. "Affiliate"
 7   also means any person that holds an insured interest because that
 8   person has or had an employment or sales contract with an insured
 9   person.
10       (2) "Captive owner" means one of the following:
11       (a) An entity that is organized under Title 23B, 24, or 25 RCW,
12   or analogous provisions of the law of another state or territory; or
13       (b) A public institution of higher education.
14       (3) "Casualty insurance" has the same meaning as "general
15   casualty insurance" as defined in RCW 48.11.070.
16       (4) "Control" means possession of the power to direct the
17   management and policies of an entity through ownership of voting
18   securities, by contract, or otherwise.
19       (5) "Eligible captive insurer" means an insurance company with
20   the following characteristics:
21       (a) It is wholly or partially owned by a captive owner;
22       (b) It insures risks of the captive owner, the captive owner's
23   other affiliates, or both;
24       (c) One or more of its insureds have their principal place of
25   business in Washington;
26       (d) It has assets that exceed its liabilities by at least
27   $1,000,000 and has the ability to pay its debts as they come due,
28   both as verified by audited financial statements prepared by an
29   independent certified accountant; and
30       (e) It is licensed as a captive insurer by the jurisdiction in
31   which it is domiciled.
32       (6) "Property insurance" has the same meaning as in RCW
33   48.11.040.
34       (7) "Public institution of higher education" means an institution
35   of higher education as defined in RCW 28B.10.016.


36       NEW SECTION.   Sec. 3.   (1) Within 120 days after the effective
37   date of this section or, if later, within 120 days after first
38   issuing a policy that covers Washington risks, an entity acting as an
39   eligible captive insurer must register with the commissioner.
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 1       (2) The commissioner will approve an eligible captive insurer's
 2   registration if the commissioner determines that the eligible captive
 3   insurer has sufficiently demonstrated:
 4       (a)(i) That its assets exceed its liabilities by at least
 5   $1,000,000 and it has the ability to pay its debts as they come due,
 6   both as verified by audited financial statements prepared by an
 7   independent certified accountant; and
 8       (ii) That it is in good standing in its jurisdiction of domicile;
 9   and
10       (b) The eligible captive insurer has paid a fee of $2,500.
11       (3) The commissioner may request additional documentation and
12   information if needed to show that these requirements have been met.
13       (4) The commissioner may deny registration for any eligible
14   captive insurer that fails to meet the requirements in subsections
15   (2) and (3) of this section.
16       (5) A registered captive insurer may renew its certificate of
17   registration for successive periods of 12 months each by, for each
18   period, meeting the requirements of subsections (2)(a) and (3) of
19   this section and paying a renewal fee in an amount set by the
20   commissioner not to exceed $2,500.
21       (6) A registered eligible captive insurer may provide only
22   property and casualty insurance and may provide such insurance to a
23   captive owner, to the captive owner's other affiliates, or both. A
24   registered eligible captive insurer may assume risks from other
25   insurers as a reinsurer without regard to the limitations in the
26   preceding sentence.
27       (7) A registered eligible captive insurer may insure risks of its
28   affiliates and obtain or provide reinsurance for ceded or assumed
29   risks insured in this state or elsewhere.

30       NEW SECTION. Sec. 4. (1) On or before the first day of March of
31   each year, a registered eligible captive insurer must remit to the
32   state treasurer through the commissioner a tax in the amount of two
33   percent of the premiums, exclusive of returned premiums and sums
34   collected to cover federal and state taxes and examination fees, for
35   insurance directly procured by and provided to its parent or another
36   affiliate for Washington risks during the preceding calendar year.
37   The tax when collected must be credited to the general fund.
38       (2) For the purposes of this section, "Washington risks" means
39   the share of risk covered by the premiums that is allocable to this
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 1   state, based on where the underlying risks are located or where the
 2   losses or injuries giving rise to covered claims arise. A registered
 3   eligible captive insurer may use any reasonable method of determining
 4   such an allocation, including actuarial analysis or use of a proxy
 5   such as sales, property value, or payroll. Whether paid directly or
 6   by reimbursement, neither the timing nor the nature of a captive
 7   insurer's payment may be deemed to reflect, create, or constitute
 8   Washington risks.
 9       (3) The registered eligible captive insurer must share its
10   methodology and relevant analysis in determining its allocation with
11   the commissioner.
12       (4) A registered eligible captive insurer is not liable for
13   premium tax on moneys received as a reinsurer or on insurance placed
14   through a surplus lines broker or other intermediary that collects
15   and remits premium tax.
16       (5) If a registered eligible captive insurer fails to remit the
17   tax provided by this section by the last day of the month in which
18   the tax becomes due, the registered eligible captive insurer must pay
19   the tax and the penalties and interest provided in RCW 48.14.060. The
20   tax may be collected by distraint, or the tax and fine may be
21   recovered by an action instituted by the commissioner in any court of
22   competent jurisdiction. Any fine collected by the commissioner must
23   be paid to the state treasurer and credited to the general fund.
24       (6) Taxes on premiums are due under this section from an eligible
25   captive insurer for any period after January 1, 2011, if not
26   previously remitted to the commissioner, and further provided that
27   all such taxes must be limited to an eligible captive insurer's
28   Washington risks. Taxes due under this subsection for periods before
29   July 1, 2021, are not subject to the penalties or interest provided
30   in RCW 48.14.060. For periods beginning July 1, 2021, a registered
31   eligible captive insurer is subject to the sanctions in subsection
32   (5) of this section.
33       (7) Taxes on premiums may not be imposed on or collected from an
34   eligible captive insurer affiliated with a public institution of
35   higher education.


36       NEW SECTION. Sec. 5. (1) The commissioner is authorized to make
37   use of any of the powers established under Title 48 RCW to enforce
38   the laws of this state. This includes, but is not limited to, the
39   commissioner's  administrative  authority  to   investigate,  issue
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 1   subpoenas, conduct depositions and hearings, issue orders, impose
 2   penalties,   and  seek   injunctive   relief.  With  regard  to   any
 3   investigation,   administrative   proceedings,  or  litigation,   the
 4   commissioner can rely on the procedural law and regulations of the
 5   state. An eligible captive insurer that violates any provision of
 6   this chapter after its effective date will be subject to the fines
 7   and penalties applicable to authorized insurers generally, including
 8   revocation of its registration, suspension of registration, and
 9   refusal to renew registration.
10       (2) An eligible captive insurer that fails to register under this
11   act is acting as an unlawful, unauthorized insurer and is subject to
12   the fines and penalties applicable to unlawful, unauthorized insurers
13   generally.


14       NEW SECTION.    Sec. 6.    The       commissioner   may   adopt   rules   as
15   necessary to implement this act.


16       Sec. 7.   RCW 48.14.020 and 2016 c 133 s 1 are each amended to
17   read as follows:
18       (1) Subject to other provisions of this chapter, each authorized
19   insurer except title insurers and registered eligible captive
20   insurers as defined in section 2 of this act shall on or before the
21   first day of March of each year pay to the state treasurer through
22   the commissioner's office a tax on premiums. Except as provided in
23   subsection (3) of this section, such tax shall be in the amount of
24   two percent of all premiums, excluding amounts returned to or the
25   amount of reductions in premiums allowed to holders of industrial
26   life policies for payment of premiums directly to an office of the
27   insurer, collected or received by the insurer under RCW 48.14.090
28   during the preceding calendar year other than ocean marine and
29   foreign   trade  insurances,   after   deducting  premiums   paid   to
30   policyholders as returned premiums, upon risks or property resident,
31   situated, or to be performed in this state. For tax purposes, the
32   reporting of premiums shall be on a written basis or on a paid-for
33   basis consistent with the basis required by the annual statement. For
34   the purposes of this section the consideration received by an insurer
35   for the granting of an annuity shall not be deemed to be a premium.
36       (2)(a) The taxes imposed in this section do not apply to amounts
37   received by any life and disability insurer for health care services
38   included within the definition of practice of dentistry under RCW
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 1   18.32.020 except amounts received for pediatric oral services that
 2   qualify as coverage for the minimum essential coverage requirement
 3   under P.L. 111-148 (2010), as amended, and for stand-alone family
 4   dental plans as defined in RCW 43.71.080(4)(a), only when offered in
 5   the individual market, as defined in RCW 48.43.005(((27))), or to a
 6   small group, as defined in RCW 48.43.005(((33))).
 7       (b) Beginning January 1, 2014, moneys collected for premiums
 8   written on qualified health benefit plans and qualified dental plans
 9   offered through the health benefit exchange under chapter 43.71 RCW
10   must be deposited in the health benefit exchange account under RCW
11   43.71.060.
12       (3) In the case of insurers which require the payment by their
13   policyholders at the inception of their policies of the entire
14   premium thereon in the form of premiums or premium deposits which are
15   the same in amount, based on the character of the risks, regardless
16   of the length of term for which such policies are written, such tax
17   shall be in the amount of two percent of the gross amount of such
18   premiums and premium deposits upon policies on risks resident,
19   located, or to be performed in this state, in force as of the thirty-
20   first day of December next preceding, less the unused or unabsorbed
21   portion of such premiums and premium deposits computed at the average
22   rate thereof actually paid or credited to policyholders or applied in
23   part payment of any renewal premiums or premium deposits on one-year
24   policies expiring during such year.
25       (4) Each authorized insurer shall with respect to all ocean
26   marine and foreign trade insurance contracts written within this
27   state during the preceding calendar year, on or before the first day
28   of March of each year pay to the state treasurer through the
29   commissioner's office a tax of ninety-five one-hundredths of one
30   percent on its gross underwriting profit. Such gross underwriting
31   profit shall be ascertained by deducting from the net premiums (i.e.,
32   gross premiums less all return premiums and premiums for reinsurance)
33   on such ocean marine and foreign trade insurance contracts the net
34   losses paid (i.e., gross losses paid less salvage and recoveries on
35   reinsurance ceded) during such calendar year under such contracts. In
36   the case of insurers issuing participating contracts, such gross
37   underwriting profit shall not include, for computation of the tax
38   prescribed by this subsection, the amounts refunded, or paid as
39   participation dividends, by such insurers to the holders of such
40   contracts.
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 1       (5) The state does hereby preempt the field of imposing excise or
 2   privilege taxes upon insurers or their appointed insurance producers,
 3   other than title insurers, and no county, city, town or other
 4   municipal subdivision shall have the right to impose any such taxes
 5   upon such insurers or these insurance producers.
 6       (6) If an authorized insurer collects or receives any such
 7   premiums on account of policies in force in this state which were
 8   originally issued by another insurer and which other insurer is not
 9   authorized to transact insurance in this state on its own account,
10   such collecting insurer shall be liable for and shall pay the tax on
11   such premiums.

12       Sec. 8.   RCW 48.14.095 and 2008 c 217 s 8 are each amended to
13   read as follows:
14       (1) This section applies to any insurer or taxpayer, as defined
15   in RCW 48.14.0201, violating or failing to comply with RCW
16   48.05.030(1),    48.17.060,     48.36A.290(1),    48.44.015(1),    or
17   48.46.027(1).
18       (2) Except as provided in subsections (7) and (8) of this
19   section, RCW 48.14.020, 48.14.0201, and 48.14.060 apply to insurers
20   or taxpayers identified in subsection (1) of this section.
21       (3) If an insurance contract, health care services contract, or
22   health maintenance agreement covers risks or exposures, or enrolled
23   participants only partially in this state, the tax payable is
24   computed on the portion of the premium that is properly allocated to
25   a risk or exposure located in this state, or enrolled participants
26   residing in this state.
27       (4) In determining the amount of taxable premiums under
28   subsection (3) of this section, all premiums, other than premiums
29   properly allocated or apportioned and reported as taxable premiums of
30   another state, that are written, procured, or received in this state,
31   or that are for a policy or contract negotiated in this state, are
32   considered to be written on risks or property resident, situated, or
33   to be performed in this state, or for health care services to be
34   provided to enrolled participants residing in this state.
35       (5) Insurance on risks or property resident, situated, or to be
36   performed in this state, or health coverage for the provision of
37   health care services for residents of this state, is considered to be
38   insurance procured, continued, renewed, or performed in this state,


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 1   regardless of the location from which the application is made, the
 2   negotiations are conducted, or the premiums are remitted.
 3       (6) Premiums on risks or exposures that are properly allocated to
 4   federal waters or international waters or under the jurisdiction of a
 5   foreign government are not taxable by this state.
 6       (7) This section does not apply to premiums on insurance procured
 7   by a licensed surplus line broker under chapter 48.15 RCW.
 8       (8) This section does not apply to premiums on insurance that is
 9   issued by a registered eligible captive insurer under chapter 48.---
10   RCW (the new chapter created in section 12 of this act).


11       Sec. 9.   RCW 48.15.160 and 2008 c 217 s 11 are each amended to
12   read as follows:
13       (1) The provisions of this chapter controlling the placing of
14   insurance with unauthorized insurers shall not apply to reinsurance,
15   to insurance issued by a registered eligible captive insurer under
16   chapter 48.--- RCW (the new chapter created in section 12 of this
17   act), or to the following insurances when so placed by licensed
18   insurance producers of this state:
19       (a) Ocean marine and foreign trade insurances.
20       (b) Insurance on subjects located, resident, or to be performed
21   wholly outside of this state, or on vehicles or aircraft owned and
22   principally garaged outside this state.
23       (c)   Insurance    on   operations   of   railroads    engaged  in
24   transportation in interstate commerce and their property used in such
25   operations.
26       (d) Insurance of aircraft owned or operated by manufacturers of
27   aircraft, or of aircraft operated in schedule interstate flight, or
28   cargo of such aircraft, or against liability, other than workers'
29   compensation and employer's liability, arising out of the ownership,
30   maintenance or use of such aircraft.
31       (2) Insurance producers so placing any such insurance with an
32   unauthorized insurer shall keep a full and true record of each such
33   coverage in detail as required of surplus line insurance under this
34   chapter and shall meet the requirements imposed upon a surplus line
35   broker pursuant to RCW 48.15.090 and any regulations adopted
36   thereunder. The record shall be preserved for not less than five
37   years from the effective date of the insurance and shall be kept
38   available in this state and open to the examination of the
39   commissioner.   The   insurance   producer  shall    furnish   to  the
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1    commissioner at the commissioner's request and on forms as designated
2    and furnished by him or her a report of all such coverages so placed
3    in a designated calendar year.


 4       Sec. 10.    RCW 82.04.320 and 1961 c 15 s 82.04.320 are each
 5   amended to read as follows:
 6       ((This)) (1) Except as otherwise provided in this section, this
 7   chapter ((shall)) does not apply to any person in respect to
 8   insurance business upon which a tax based on gross premiums is paid
 9   to the state((: PROVIDED, That the)).
10       (2) The provisions of this section ((shall)) do not exempt any
11   person engaging in the business of representing any insurance
12   company, whether as general or local agent, or acting as broker for
13   such companies((: PROVIDED FURTHER, That the)).
14       (3) The provisions of this section ((shall)) do not exempt any
15   bonding company from tax with respect to gross income derived from
16   the completion of any contract as to which it is a surety, or as to
17   any liability as successor to the liability of the defaulting
18   contractor.
19       (4) For purposes of this section, for periods preceding the
20   effective date of this section, eligible captive insurers as defined
21   in section 2 of this act are deemed to be persons in respect to
22   insurance business that have paid a tax on gross premiums to the
23   state.


24       Sec. 11.   RCW 48.14.090 and 2009 c 161 s 4 are each amended to
25   read as follows:
26       In determining the amount of direct premium taxable in this state
27   other than for policies issued by an eligible captive insurer as
28   defined in section 2 of this act, all such premiums written,
29   procured, or received in this state shall be deemed written upon
30   risks or property resident, situated, or to be performed in this
31   state except such premiums as are properly allocated or apportioned
32   and reported as taxable premiums of any other state or states. For
33   tax purposes, the reporting of premiums shall be on a written basis
34   or on a paid-for basis consistent with the basis required by the
35   annual statement.


36       NEW SECTION.    Sec. 12.     Sections   1   through   6   of   this   act
37   constitute a new chapter in Title 48 RCW.
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1        NEW SECTION.    Sec. 13.   If any provision of this act or its
2    application to any person or circumstance is held invalid, the
3    remainder of the act or the application of the provision to other
4    persons or circumstances is not affected.


5        NEW SECTION. Sec. 14. Sections 8 through 11 of this act apply
6    both retroactively and prospectively.

 7       NEW SECTION. Sec. 15. This act is necessary for the immediate
 8   preservation of the public peace, health, or safety, or support of
 9   the state government and its existing public institutions, and takes
10   effect immediately.

                                 --- END ---




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