Washington Insurance Commissioner Mike Kreidler has ordered the captive insurers for two giant corporations to stop insuring risk in the state, adding to a large list of big companies whose captives have been fined by the commissioner.
Kreidler ordered insurers Olympic Casualty Insurance Co. and ASA Assurance to stop insuring risk in Washington for their parent companies, Starbucks and Alaska Air Group.
Kreidler is pursuing captive insurers for failing to pay premium tax to the state. He set up a self-reporting plan for captives in December 2018 that offered tiered fines to encourage early repayment of past due taxes.
To date, 16 captives have self-reported and two captives have paid $2.9 million in unpaid premium taxes and $1.4 million in fines, tax penalties and interest.
Kreidler reached a settlement of $876,820 with Cypress, a captive insurer for Microsoft Corp., in August 2018. He reached a settlement of $3.6 million with NW Re Limited, a captive insurer for Costco Wholesale Corp., in March 2019.
The order against Olympic Casualty Insurance Co. has been stayed pending an administrative hearing.
Both companies are captive insurers, which are not authorized under Washington law. Companies must buy insurance from an admitted insurer or through a licensed surplus line broker, and they must pay a 2% premium tax on the insurance they buy. The tax revenue is sent to the state general fund to pay for government operations.
In September 2019, Kreidler ordered ASA Assurance Inc., a captive insurer for Alaska Air Group, to pay more than $2.5 million in unpaid premium tax and penalties owed to Washington. ASA issued four policies for Alaska Air Group and its subsidiaries, Alaska Airlines Inc., Horizon Air Industries Inc., and McGee Air Services Inc., collecting $91 million in premiums.
ASA has asked for a hearing, which is set for July 13.
In December 2019, Kriedler ordered Olympic Casualty Insurance Co., a captive insurer for Starbucks Corp., to pay $22.8 million in unpaid premium taxes, interest, and penalties and a $1.1 million fine.
Olympic issued 44 policies in Washington from 2008 until 2019, collecting $633.4 million in premiums. Olympic sought a hearing. A prehearing conference is Jan. 14. A stay is in place for the fine and the order to cease and desist pending the outcome of the hearing.
A spokesman for Starbucks issued the following statement on behalf of the company:
“The Washington State Office of the Insurance Commissioner (OIC) publicly declared that they were considering the use of captive insurance companies, a legal and well-known best practice, as unlawful. Starbucks and other Washington state businesses have used captive insurance companies for decades. Following the OIC’s position on captive insurers, we immediately cooperated and voluntarily self-reported our captive insurance policies to the OIC.”
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