Costco Captive in Washington Pays $3.6M in Back Premium Taxes, Penalties

March 12, 2019

NW Re Limited, of Phoenix, Ariz., has settled with Washington state Insurance Commissioner Mike Kreidler to pay $3.6 million in unpaid premium taxes, penalties, interest and a fine.

NW Re’s sole insured and parent company is Costco Wholesale Corp., headquartered in Issaquah, Wash. NW Re self-reported its unauthorized activity in December 2018 as part of Kriedler’s project to identify all captives that insure assets in Washington state. It provided deductible reimbursement for Costco’s liability and workers’ compensation from 2000 until 2019 without authorization.

It paid $2.4 million in unpaid premium taxes and $1.2 million in fines, tax penalties and interest on March 8.

Kreidler announced a project in December 2018 to identify all captives doing business in Washington. Captives must self-report before June 30, 2020 to be eligible for reduced fines and premium tax penalties.

Fines and penalties increase every six months for captive insurers that fail to self-report, starting July 1. Captives that do not self-report before June 30, 2020, will face the maximum fines and tax penalties.

Kreidler’s office has collected about $4.4 million in agreements with captive insurers. He reached a settlement of $876,820 with Cypress, the captive insurer for Microsoft Corp., in August 2018. The commissioner issued a cease and desist order against Microsoft Corp. in May of last year to stop using its Arizona-domiciled captive, Cypress Insurance Co.

State law requires that when risk is insured in Washington, it be done through an admitted insurer or through an unauthorized insurer placed through a licensed surplus line broker. State law also requires insurance companies to pay a 2 percent tax based on their written premiums. The tax revenue is sent to the state general fund to pay for government operations.

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