Senate Bill 5315 — passed by Washington state in May 2021 — provides a formal compliant framework for captive insurers to register and pay state premium taxes on Washington-based risks they directly insure. The law is particularly relevant to captives with Washington-based parents and affiliates or an insured entity maintaining a principal place of business in Washington.
The bill requires that captives directly insuring risks in Washington state must:
According to the new law, captive insurers meeting the definition of an “eligible” insurer have the following characteristics:
“Eligible” captive insurers are required to register with the WA OIC, pay the registration fee, and, if applicable, pay any back taxes within 120 days from the passing of the legislation (that is, by September 9, 2021) or of first issuing a policy covering Washington risks, if that happens after. While the Washington Commissioner still has to set the annual renewal fee, the legislation states that this shall not exceed $2,500. An eligible captive insurer that fails to register and pay the required fee and taxes will be deemed an unauthorized insurer and is subject to fines and penalties applicable to unauthorized insurers.
As with all relevant regulatory and tax matters, impact on your captive may vary considerably depending on the circumstances unique to your individual organization. We encourage captive owners to review and discuss how such reforms may affect their captive with their organization’s tax department and/or external advisors.