Senate Bill 5315 - Captive Insurance, State of Washington (2021 Regular Session)

Summary

Senate Bill 5315, State of Washington, 67th Legislature, 2021 Regular Session, by Senators Mullet and Dozier, is an act relating to captive insurance that also declares an emergency. Section 3 requires an eligible captive insurer to register with the commissioner, who approves registration on a showing that its assets exceed its liabilities by at least $1,000,000 and that it has paid a fee of $2,500. Section 4 requires a registered eligible captive insurer to remit to the state treasurer a tax of two percent of premiums on or before the first day of March each year. Section 7 amends RCW 48.14.020, and Section 15 states that the act takes effect immediately.

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     S-0518.1

                               SENATE BILL 5315


     State of Washington       67th Legislature       2021 Regular Session

     By Senators Mullet and Dozier




 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
                                     p. 3                          SB 5315
 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       NEW SECTION. Sec. 5. (1) The commissioner is authorized to make
34   use of any of the powers established under Title 48 RCW to enforce
35   the laws of this state. This includes, but is not limited to, the
36   commissioner's   administrative   authority   to   investigate,    issue
37   subpoenas, conduct depositions and hearings, issue orders, impose
38   penalties,   and  seek   injunctive   relief.   With   regard   to   any
39   investigation,   administrative   proceedings,   or   litigation,    the
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 1   commissioner can rely on the procedural law and regulations of the
 2   state. An eligible captive insurer that violates any provision of
 3   this chapter after its effective date will be subject to the fines
 4   and penalties applicable to authorized insurers generally, including
 5   revocation of its registration, suspension of registration, and
 6   refusal to renew registration.
 7       (2) An eligible captive insurer that fails to register under this
 8   act is acting as an unlawful, unauthorized insurer and is subject to
 9   the fines and penalties applicable to unlawful, unauthorized insurers
10   generally.

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


13       Sec. 7.   RCW 48.14.020 and 2016 c 133 s 1 are each amended to
14   read as follows:
15       (1) Subject to other provisions of this chapter, each authorized
16   insurer except title insurers and registered eligible captive
17   insurers as defined in section 2 of this act shall on or before the
18   first day of March of each year pay to the state treasurer through
19   the commissioner's office a tax on premiums. Except as provided in
20   subsection (3) of this section, such tax shall be in the amount of
21   two percent of all premiums, excluding amounts returned to or the
22   amount of reductions in premiums allowed to holders of industrial
23   life policies for payment of premiums directly to an office of the
24   insurer, collected or received by the insurer under RCW 48.14.090
25   during the preceding calendar year other than ocean marine and
26   foreign   trade  insurances,   after   deducting  premiums   paid   to
27   policyholders as returned premiums, upon risks or property resident,
28   situated, or to be performed in this state. For tax purposes, the
29   reporting of premiums shall be on a written basis or on a paid-for
30   basis consistent with the basis required by the annual statement. For
31   the purposes of this section the consideration received by an insurer
32   for the granting of an annuity shall not be deemed to be a premium.
33       (2)(a) The taxes imposed in this section do not apply to amounts
34   received by any life and disability insurer for health care services
35   included within the definition of practice of dentistry under RCW
36   18.32.020 except amounts received for pediatric oral services that
37   qualify as coverage for the minimum essential coverage requirement
38   under P.L. 111-148 (2010), as amended, and for stand-alone family
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 1   dental plans as defined in RCW 43.71.080(4)(a), only when offered in
 2   the individual market, as defined in RCW 48.43.005(((27))), or to a
 3   small group, as defined in RCW 48.43.005(((33))).
 4       (b) Beginning January 1, 2014, moneys collected for premiums
 5   written on qualified health benefit plans and qualified dental plans
 6   offered through the health benefit exchange under chapter 43.71 RCW
 7   must be deposited in the health benefit exchange account under RCW
 8   43.71.060.
 9       (3) In the case of insurers which require the payment by their
10   policyholders at the inception of their policies of the entire
11   premium thereon in the form of premiums or premium deposits which are
12   the same in amount, based on the character of the risks, regardless
13   of the length of term for which such policies are written, such tax
14   shall be in the amount of two percent of the gross amount of such
15   premiums and premium deposits upon policies on risks resident,
16   located, or to be performed in this state, in force as of the thirty-
17   first day of December next preceding, less the unused or unabsorbed
18   portion of such premiums and premium deposits computed at the average
19   rate thereof actually paid or credited to policyholders or applied in
20   part payment of any renewal premiums or premium deposits on one-year
21   policies expiring during such year.
22       (4) Each authorized insurer shall with respect to all ocean
23   marine and foreign trade insurance contracts written within this
24   state during the preceding calendar year, on or before the first day
25   of March of each year pay to the state treasurer through the
26   commissioner's office a tax of ninety-five one-hundredths of one
27   percent on its gross underwriting profit. Such gross underwriting
28   profit shall be ascertained by deducting from the net premiums (i.e.,
29   gross premiums less all return premiums and premiums for reinsurance)
30   on such ocean marine and foreign trade insurance contracts the net
31   losses paid (i.e., gross losses paid less salvage and recoveries on
32   reinsurance ceded) during such calendar year under such contracts. In
33   the case of insurers issuing participating contracts, such gross
34   underwriting profit shall not include, for computation of the tax
35   prescribed by this subsection, the amounts refunded, or paid as
36   participation dividends, by such insurers to the holders of such
37   contracts.
38       (5) The state does hereby preempt the field of imposing excise or
39   privilege taxes upon insurers or their appointed insurance producers,
40   other than title insurers, and no county, city, town or other
                                     p. 6                          SB 5315
1    municipal subdivision shall have the right to impose any such taxes
2    upon such insurers or these insurance producers.
3        (6) If an authorized insurer collects or receives any such
4    premiums on account of policies in force in this state which were
5    originally issued by another insurer and which other insurer is not
6    authorized to transact insurance in this state on its own account,
7    such collecting insurer shall be liable for and shall pay the tax on
8    such premiums.

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



                                     p. 7                          SB 5315
1        (6) Premiums on risks or exposures that are properly allocated to
2    federal waters or international waters or under the jurisdiction of a
3    foreign government are not taxable by this state.
4        (7) This section does not apply to premiums on insurance procured
5    by a licensed surplus line broker under chapter 48.15 RCW.
6        (8) This section does not apply to premiums on insurance that is
7    issued by a registered eligible captive insurer under chapter 48.---
8    RCW (the new chapter created in section 12 of this act).


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


                                     p. 8                          SB 5315
 1   and furnished by him or her a report of all such coverages so placed
 2   in a designated calendar year.


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


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


35       NEW SECTION.    Sec. 12.     Sections   1   through   6   of   this   act
36   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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