Washington Insurance Commissioner Orders Alaska Air Captive to Pay $2.5M

Washington Insurance Commissioner Mike Kreidler has hit another big corporation’s captive insurer with a fine.

Kreidler has been going after captives for owed taxes by fining them since last year, when he issued large fines to captives for Microsoft and Costco.

Kreidler has 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 state for the unauthorized sale of insurance.

ASA Assurance is a captive insurance company formed by Alaska Air Group for the purpose of insuring its risk in states including Washington. It 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 is not admitted to sell insurance in Washington state, according to Kreidler’soffice. State law requires insurance companies to pay a 2% tax based on their written premiums. ASA reportedly paid no premium tax on the insurance it unlawfully sold.

Washington state does not currently license captive insurers. Companies must buy insurance from either an admitted insurer or through a licensed surplus line broker and they must pay premium tax on the insurance they buy.

Kreidler determined in 2018 that many large Washington companies are using captives to purchase their own insurance and failing to pay premium tax, and his office is working to identify all captives doing business in Washington. To date, nine 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.

Kreidler reached a settlement with NW Re Limited, a captive insurer for Costco Wholesale Corp., on March 8. It paid $3.6 million in premium taxes, tax penalties, interest and fines.

ASA Assurance, domiciled in Honolulu, Hawaii, has demanded a hearing before an administrative law judge.