A “captive” insurance company is an insurance company formed to provide coverage for the entity, usually a large company, that formed it. Companies form captives to insure their own risks and the risks of their subsidiaries or affiliates. Captive insurers provide either supplemental commercial insurance or coverage for risks their parent companies can’t cover with regular commercial insurance.
A captive insurer operates like a normal insurer. They issue policies, collect premiums and pay claims. The difference is that captives do not offer insurance to the public.
Captives are regulated and registered at the state level. Captives approved by the OIC can cover Washington risks and conduct business in Washington state. Captives, however, cannot be licensed or domiciled in Washington state.
Establishing a legal framework
In 2019, the OIC began investigating Washington-based companies who formed captive insurance companies and covered Washington risks without registration or tax requirements. The OIC pursued unpaid premium taxes, interest, and penalties, with 16 captives self-reporting. Two of those settled prior to the 2020 legislative session.
Legislation setting up a legal framework for taxation and regulation was drafted, but did not pass, in 2020. By legislative request, the OIC suspended litigation and enforcement actions on captives to study the scope of captive insurance in Washington state. The ensuing study (PDF, 7.90 MB) found captives had been operating in Washington as far back as 2010.
Insurance Commissioner Mike Kreidler recognized captive insurance as a prudent risk management tool, but also believed captives should pay their fair share of premium taxes to Washington. He worked with interested parties to introduce captive insurance legislation (2SSB 5315) during the 2021 Legislative Session. Gov. Jay Inslee signed it into law on May 12, 2021.
This established a legal framework for registering eligible captive insurers and imposed a 2% premium tax on the risk covered in Washington.
The OIC’s work on captive insurance
Captive insurers must register in Washington state
As of December 2021, the OIC has registered 26 captive insurance companies in Washington state.
To register as a captive insurer with the OIC, insurers must:
- Be in good standing and licensed as a captive insurer.
- Be wholly or partially owned by a captive owner.
- Insure risks of the captive owner, the owner’s other affiliates, or both.
- Have one or more of its insureds headquartered in Washington.
- Have assets that exceed its liabilities by at least $1 million and the ability to pay its debts as they come due.
- Provide only property and casualty insurance to the captive owner, the captive owner’s other affiliates, or both.
- Pay a registration fee of $2,500 total.
Agency enforcement actions against captive insurers
Since May 12, 2021, the OIC has recorded one enforcement action (for failure to meet registration qualifications).
Premium taxes paid by captive insurers
As of December 2021, the OIC has collected $2.9 million in premium taxes from captive insurers. These taxes are deposited in the state's general fund to pay for state services.