A insruance company covering Costco has been hit with more than $3 million in back taxes.
NW Re Limited agreed last week, to pay the state $3.6 million in unpaid back taxes, penalties and interest after they self-reported illegal business conduct in the state. Costco Wholesale Corp. of Issaquah is the parent company and sole insured by NW Re., a captive insurance company based in Phoenix, Ariz.
Captive insurers are companies that are wholly owned by its insured and in Washington, nonadmitted captive insurers must place their business through a surplus line broker licensed in the state. If not, they could potentially skip out on a mandated 2-percent tax on written premiums, funds used for government operations.
“Surplus lines brokers are our regulatory link to nonadmitted insurers, and we knew captives weren’t placing business though them,” said Steve Valandra, public affairs commissioner with the state office of the Insurance commissioner.
Of the fine NW Re paid, $2.4 million is in unpaid premium taxes and $1.2 million were paid in fines, tax penalties and interest, after reaching a settlement on March. 4, according to the Washington State Office of the Insurance Commissioner.
Starting in 2019, state Insurance Commissioner Mike Kreidler gave captive insurers until June 2020 to report any illegal conduct in exchange for reduced fines and penalties. After the deadline, captives will face maximum fines for their illegal state conduct.
“We don’t know how many captives insure risk in Washington state, which is why we undertook the project to have them self-report,” Valandra said. “Financially, it could be a big deal.”
So far, the state has collected about $4.4 million from captive insurers under the temporary agreement. In August last year, a settlement was reached with the captive insurer for Microsoft Corp, Cypress, for $876,820.
NW Re, based in Phoenix, provided deductible reimbursement for Costco’s liability and workers compensation from 2000 to 2019, without authorization. The company declined an opportunity to comment.