WSR 21-20-093
PROPOSED RULES
OFFICE OF THE
INSURANCE COMMISSIONER
[Insurance Commissioner Matter R 2021-12—Filed October 1, 2021, 10:35 a.m.]
Original Notice.
Preproposal statement of inquiry was filed as WSR 21-14-075.
Title of Rule and Other Identifying Information: Captive insurance (chapter
48.201 RCW).
Hearing Location(s): On November 9, 2021, at 9:00 a.m., virtual format – Zoom meeting. Detailed information for attending the Zoom meeting posted on the office of the insurance commissioner (OIC) website here https://www.insurance.wa.gov/captive-insurance-r-2021-12. Due to the COVID-19 public health emergency, this hearing will be held via Zoom. Comments can be emailed to RulesCoordinator@OIC.WA.GOV.
Date of Intended Adoption: November 15, 2021.
Submit Written Comments to: Michael Walker, P.O. Box 40260, Olympia, WA 98504-0260, email rulescoordinator@oic.wa.gov, fax 360-586-3109, by October 27, 2021.
Assistance for Persons with Disabilities: Contact Melanie Watness, phone 360-725-7013, fax 360-586-2023, TTY 360-586-0241, email MelanieW@oic.wa.gov.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The laws for captive insurance (chapter
48.201 RCW) authorize OIC rule making to incorporate the statutory framework and requirements for captive insurance into WAC, along with implementation processes, clarifications, and regulatory guidance.
The anticipated effects of the proposal are rule making related to determining eligibility of captive insurers, registering and renewing eligible captive insurers, enforcement, and collecting associated taxes, registration fees, and annual renewal fees from captive insurers that are licensed by their domicile jurisdictions and insure Washington-based entities.
These rules will facilitate implementation of captive insurance by ensuring that all affected entities understand their rights and obligations under the new law.
Reasons Supporting Proposal: The act relating to captive insurance (2SSB 5315) has become effective as law (chapter
48.201 RCW). This law establishes statutory framework for Washington-based private entities and public institutions of higher education to manage their risks through captive insurers, which will require proper regulation and taxation by OIC. RCW
48.201.060 authorizes OIC rule making to incorporate the statutory framework and requirements for captive insurance into the WAC, along with implementation processes, clarifications, and regulatory guidance.
Statute Being Implemented: Chapter
48.201 RCW, Captive insurance.
Rule is not necessitated by federal law, federal or state court decision.
Name of Proponent: Mike Kreidler, insurance commissioner, governmental.
Name of Agency Personnel Responsible for Drafting: Michael Walker, P.O. Box 40260, Olympia, WA 98504-0260, 360-725-7036; Implementation and Enforcement: Melanie Anderson, P.O. Box 40260, Olympia, WA 98504-0260, 360-725-7000.
A school district fiscal impact statement is not required under RCW
28A.305.135.
A cost-benefit analysis is not required under RCW
34.05.328. This rule making is exempt from the cost-benefit analysis under RCW
34.05.328 (5)(b)(iii) and
34.05.328 (5)(b)(v). Under RCW
34.05.328 (5)(b)(iii), rule making is exempt from a cost-benefit analysis if the proposed rules are adopting or incorporating by reference, without material change, Washington state statutes, if the material adopted or incorporated regulates the same subject matter and conduct as the adopting or incorporating rules. Here, OIC is adopting the statutory requirements for captive insurers (chapter
48.201 RCW) into WAC, as rules that regulate the same subject matter and conduct of captive insurers, and without material change. Additionally, under RCW
34.05.328 (5)(b)(v) rule making is exempt from a cost-benefit analysis if the content of the rules is explicitly and specifically dictated by statute. Here, the proposed captive insurance rules (chapter 284-201 WAC) are drafted in direct alignment with chapter
48.201 RCW, and the rules are explicitly and specifically dictated by statute.
This rule proposal, or portions of the proposal, is exempt from requirements of the Regulatory Fairness Act because the proposal:
Is exempt under RCW
19.85.025(3) as the rules are adopting or incorporating by reference without material change federal statutes or regulations, Washington state statutes, rules of other Washington state agencies, shoreline master programs other than those programs governing shorelines of statewide significance, or, as referenced by Washington state law, national consensus codes that generally establish industry standards, if the material adopted or incorporated regulates the same subject matter and conduct as the adopting or incorporating rule; rule content is explicitly and specifically dictated by statute; and rules adopt, amend, or repeal a procedure, practice, or requirement relating to agency hearings; or a filing or related process requirement for applying to an agency for a license or permit.
Explanation of exemptions: Under RCW
34.05.310 (4)(g)(ii) rule making is exempt from the small business economic impact statement (SBEIS) requirement (chapter
19.85 RCW), if the rules adopt a filing or related process requirement for applying to an agency for a license or permit. Here, the rule making is adopting the process requirements for captive insurers applying to OIC for registration (or permit) to do business in this jurisdiction. Therefore, this rule making qualifies for an exemption from the SBEIS under RCW
34.05.310 (4)(g)(ii).
Under RCW
34.05.310 (4)(e), rule making is exempt form [from] the SBEIS requirement (chapter
19.85 RCW), if the content of the rules are explicitly and specifically dictated by statute. Here, the proposed captive insurance rules (chapter 284-201 WAC) are drafted in direct alignment with chapter
48.201 RCW, and the rules are explicitly and specifically dictated by statute.
Under RCW
34.05.310 (4)(c), rule making is exempt from the SBEIS requirement (chapter
19.85 RCW), if the rules adopt or incorporate by reference without material change Washington state statutes, if the material adopted or incorporated regulates the same subject matter and conduct as the adopting or incorporating rule. This rule making is incorporating chapter
48.201 RCW by referring to the statutory requirements for captive insurers in the proposed regulations (chapter 284-201 WAC) without material changes, and regulates the same subject matter of captive insurance. Therefore, this rule making qualifies for an SBEIS exemption under RCW
34.05.310 (4)(c).
October 1, 2021
Mike Kreidler
Insurance Commissioner
OTS-3316.4
Chapter 284-201 WACCAPTIVE INSURANCE
NEW SECTION
WAC 284-201-110Purpose.
These regulations implement captive insurance (chapter
48.201 RCW) including, but not limited to, the processes and procedures for regulation and taxation of captive insurers by the office of the insurance commissioner (commissioner).
NEW SECTION
WAC 284-201-120Applicability and scope.
This chapter applies to eligible captive insurers as defined in chapter
48.201 RCW, except for risk retention groups that must register pursuant to chapter
48.92 RCW and captive insurers that solely place insurance through a surplus line broker pursuant to chapter
48.15 RCW.
NEW SECTION
WAC 284-201-130Definitions.
The definitions in RCW
48.201.020, apply in this regulation unless otherwise specified or unless the context clearly requires otherwise. The following definitions apply to this chapter and to chapter
48.201 RCW:
(1) "Captive insurer" means an entity that is wholly or partially owned by a "captive owner" and it insures risks of the captive owner, the captive owner's other affiliates, or both.
(2) "Eligible captive insurer" has the same meaning as set forth in chapter
48.201 RCW.
(3) "Insurer" has the same meaning as set forth in RCW
48.01.050.
(4) "Principal place of business" refers to the place where a business entity's management direct, control, and coordinate the corporation's activities, i.e., its "nerve center," which will typically be found at its corporate headquarters. Except where the parent corporation is the alter ego of the subsidiary, subsidiaries are analyzed separately from their parent or holding companies. For example, if a captive insurer insures a subsidiary that is headquartered in Washington, then this state would be the principal place of business for the insured subsidiary, even if the parent company was headquartered elsewhere.
(5) "Registered eligible captive insurer" means an eligible captive insurer who submitted an application that was approved by the commissioner. A registered eligible captive insurer that fails to properly renew its registration will no longer be considered registered under chapter
48.201 RCW.
(6) "Reinsurance" means a form of insurance issued to insurers.
(7) "Reinsurer" means an insurer that assumes all or part of an insurance or reinsurance policy written by the ceding insurer.
NEW SECTION
WAC 284-201-140Computation of time.
In computing any period of time prescribed by this rule, the commissioner:
(1) Will not count the first day; and
(2) Will count the next and last day, unless either is a weekend or a state legal holiday.
NEW SECTION
WAC 284-201-150Severability.
If any provision of this chapter or its application to any person or circumstances is held invalid, the remainder of the chapter or its application of the provision to other persons or circumstances is not affected.
NEW SECTION
WAC 284-201-210Registration.
(1) Eligible captive insurers must register with the commissioner within 120 days of May 12, 2021, or if later, within 120 days after first issuing a policy that covers Washington risks.
(2) The registration period for eligible captive insurers will be from the date the registration is approved by the commissioner, through June 30th.
(3) The commissioner may request and the eligible captive insurer must provide additional documentation and information to show registration requirements have been met.
(4) The registration fee is $2,500.00.
(5) The commissioner will approve an eligible captive insurer's registration, if the commissioner determines that it meets the eligibility requirements in chapter
48.201 RCW, and this section.
NEW SECTION
WAC 284-201-220Renewal.
(1) To maintain registration, a registered eligible captive insurer must renew certificates of registration annually by June 30th. If an eligible captive insurer fails to properly renew their certificate of registration, then its registration will expire at the end of its registration period.
(2) The renewal process will require that a registered eligible captive insurer continue to meet eligibility requirements in accordance with RCW
48.201.020 and
48.201.030, and pay a renewal fee.
(3) For renewal, the commissioner will charge an annual renewal fee not to exceed $2,500.00. The amount of the renewal fee will be published on the commissioner's website and must be paid by June 30th.
(4) The renewal period will be from July 1st through June 30th.
(5) In order to obtain a timely annual renewal, a registered eligible captive insurer should file the renewal application no later than April 1st. Otherwise, OIC may not approve the eligible captive insurer's renewal before the June 30th expiration date and the eligible captive insurer's registration will expire. If an eligible captive insurer's registration expires, it will then need to complete and file a new application and pay the fee for a new registration.
NEW SECTION
WAC 284-201-230Insurance limitations.
(1) For Washington risks, a registered eligible captive insurer may provide only property and casualty insurance, and may provide such insurance to only a captive owner, to the captive owner's other affiliates, or both, unless it places the insurance through a surplus lines broker pursuant to chapter
48.15 RCW.
(a) A registered eligible captive insurer may not provide stop loss insurance as defined in RCW
48.11.030 or
48.21.015.
(b) A registered eligible captive insurer may not provide workers' compensation coverage that directly covers the worker. A registered eligible captive insurer may indemnify a self-insured employer for their workers' compensation liability.
(2) A registered eligible captive insurer may assume risks from other insurers as a reinsurer without regard to the limitations in subsection (1) of this section.
NEW SECTION
WAC 284-201-240Taxes.
(1) A registered eligible captive insurer shall on or before the first day of March of each year pay to the state treasurer through the commissioner's office a two percent tax on premiums for insurance directly procured by and provided to its parent or another affiliate for Washington risks during the previous calendar year. A registered eligible captive insurer that fails to remit the tax by the last day of the month in which the tax becomes due, will be subject to the tax, penalties, and interest provided in RCW
48.14.060.
(2) A registered eligible captive insurer shall file with the commissioner a statement of premiums on a tax form furnished by the commissioner. For tax purposes, the reporting of premiums shall be on a written basis.
(3) Instructions for accessing the online tax forms will be sent out to the registered eligible captive insurer's tax contact in January of each year. Tax contact information is provided to the commissioner as part of the registration process.
(4) The registered eligible captive insurer must share its methodology and relevant analysis in determining its Washington risks allocation by submitting this information to the commissioner by April 1st of each year, in a method as prescribed and furnished by the commissioner.
(5) Prior period taxes. Eligible captive insurers who insured Washington risk for any period after January 1, 2011, must remit a two percent tax on premiums for insurance directly procured by and provided to its parent or another affiliate for Washington risks, if not previously remitted to the commissioner. The reporting of premiums under this section shall be on a written basis, in a method as prescribed and furnished by the commissioner. Taxes due for premiums procured prior to January 1, 2021, are not subject to the penalties or interest provided in RCW
48.14.060.
(6) Eligible captive insurers must pay premium tax for Washington risks covered by all types of insurance, including premiums collected for insurance that is not property or casualty insurance, if the eligible captive insurer provided such coverage for any period after January 1, 2011.
NEW SECTION
WAC 284-201-250Administration.
(1) The commissioner is authorized to make use of any of the powers established under Title
48 RCW to enforce the laws of this state. This includes, but is not limited to, the commissioner's administrative authority to investigate, issue subpoenas, conduct depositions and hearings, issue orders, impose penalties, and seek injunctive relief. Regarding any investigation, administrative proceedings, or litigation, the commissioner can rely on the procedural laws and regulations of the state.
(2) Fines and penalties.
(a) An eligible captive insurer that fails to register or maintain registration under this chapter or chapter
48.92 RCW is acting as an unlawful, unauthorized insurer, as set forth in RCW
48.15.020 and is subject to the fines and penalties under RCW
48.15.023, taxation under RCW
48.14.095 and penalties and interest under RCW
48.14.060.
(c) A registered eligible captive insurer that violates any provision of this chapter will be subject to the fines and penalties applicable to authorized insurers generally, as set forth in chapter
48.05 RCW, including revocation of its registration, suspension of registration, and refusal to renew registration.
(d) The commissioner may deny the registration or renewal of a captive insurer who the commissioner has determined failed to sufficiently demonstrate the requirements outlined in RCW
48.201.020 and
48.201.030, and this chapter.
NEW SECTION
WAC 284-201-300Adjudicative proceedings.
(1) Captive insurers may demand a hearing with the commissioner by submitting a request for an adjudicative proceeding in accordance with WAC 284-02-070 and RCW
48.04.010.
(2) General procedural and substantive requirements for adjudicative proceedings are contained in WAC 284-02-070, chapters
48.04 and
34.05 RCW.