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IRS Issues Unpaid Loss and Salvage Discount Factors for 2020

NOV. 4, 2020

Rev. Proc. 2020-48; 2020-48 IRB 1459

DATED NOV. 4, 2020
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Internal Revenue Service
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2020-43371
  • Tax Analysts Electronic Citation
    2020 TNTF 214-18
    2020 TPR 45-7
Citations: Rev. Proc. 2020-48; 2020-48 IRB 1459

26 CFR 601.201: Rulings and determination letters.
(Also: Part I, Sections 832, 846; 1.832-4, 1.846-1.)

SECTION 1. PURPOSE

This revenue procedure prescribes discount factors for the 2020 accident year for use by insurance companies in computing discounted unpaid losses under § 846 of the Internal Revenue Code and discounted estimated salvage recoverable under § 832. This revenue procedure also provides, for convenience, discount factors for losses incurred in the 2019 accident year and earlier accident years for use in taxable years beginning in 2020. The discount factors for accident years before 2020 were prescribed in Rev. Proc. 2019-31, 2019-33 I.R.B. 643. See Rev. Proc. 2019-31 and Rev. Proc. 2019-06, 2019-02 IRB 284, for background concerning the loss payment patterns and application of the discount factors.

SECTION 2. SCOPE

This revenue procedure applies to any insurance company that is required to discount unpaid losses under § 846 for a line of business using the discount factors published by the Secretary, and also applies to any insurance company that is required to discount estimated salvage recoverable under § 832.

SECTION 3. DISCOUNT FACTORS FOR THE 2020 ACCIDENT YEAR

.01 The tables in this section 3 present separately for each line of business the discount factors for losses incurred in the 2020 accident year for use by insurance companies in computing discounted unpaid losses under § 846 and estimated salvage recoverable under § 832. All of the discount factors presented in these tables are determined by using the applicable interest rate for 2020 under § 846(c), which is 3.08 percent, compounded semiannually, and the payment patterns for the 2017 determination year determined by the Secretary under § 846(d). All of the discount factors presented in these tables are determined by assuming all loss payments occur in the middle of the calendar year.

.02 Section V of Notice 88-100, 1988-2 C.B. 439, sets forth a composite method for computing discounted unpaid losses for accident years that are not separately reported on the annual statement. Tables 1 and 2 separately provide discount factors for insurance companies that have elected to use the composite method of Notice 88-100. See Rev. Proc. 2002-74, 2002-2 C.B. 980. The discount factors computed using the composite method are unrelated to the composite discount factors referred to in § 1.846-1(b)(1)(ii) and (4) of the Income Tax Regulations, which apply to lines of business for which the Secretary has not published discount factors. The composite discount factors for use with respect to such lines of business are labelled “Short-Tail Composite” (in Table 1, part B) and “Long-Tail Composite” (in Table 2, part B). The “Miscellaneous Casualty” discount factors referenced in § 1.846-1(b)(2) are not set forth in tables, but are equivalent to the “Short-Tail Composite” discount factors.

Table 1 (part A)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2020 in Short-Tail Lines of Business

Taxable Year Beginning in

Auto Physical Damage

Fidelity/Surety

Financial Guaranty/Mortgage Guaranty

International

Other*

2020

98.3139

95.8052

95.5582

96.1310

96.9677

2021

97.0010

97.0010

97.0010

97.0010

97.0010

Taxpayer Not Using Composite Method

Years after 2021

98.4834

98.4834

98.4834

98.4834

98.4834

Taxpayer Using the Composite Method

2022

98.4834

98.4834

98.4834

98.4834

98.4834

Years after 2022

Use composite discount factors published for the relevant accident year.**

* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount factor for taxable year 2020 is 98.4834 percent. For later years, the discount factor for losses incurred in 2020 is the discount factor published for Accident and Health lines of business for losses incurred in the accident year coinciding with the taxable year.

** The relevant accident year is the accident year that is two years prior to the specified taxable year.

Table 1 (part B)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2020 in Short-Tail Lines of Business

Taxable Year Beginning in

Reinsurance — Nonproportional Assumed Liability

Reinsurance — Nonproportional Assumed Property

Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Burglary & Theft)

Warranty

Short-Tail Composite

2020

94.6016

96.1125

97.3985

98.1106

96.8566

2021

97.0010

97.0010

97.0010

97.0010

97.0010

Taxpayer Not Using Composite Method

Years after 2021

98.4834

98.4834

98.4834

98.4834

98.4834

Taxpayer Not Using Composite Method

2022

98.4834

98.4834

98.4834

98.4834

98.4834

Years after 2022

Use composite discount factors published for the relevant accident year.**

** The relevant accident year is the accident year that is two years prior to the specified taxable year.

Table 2 (part A)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2020 in Long-Tail Lines of Business

Taxable Year Beginning in

Commercial Auto/Truck Liability/Medical

Medical Professional Liability — Claims-Made

Medical Professional Liability — Occurrence

Multiple Peril Lines

Other Liability — Claims-Made

Other Liability — Occurrence

2020

93.7894

91.2887

86.3302

95.0975

90.4958

88.9133

2021

94.5252

92.3148

88.4733

93.3939

91.3319

89.7843

2022

95.0694

92.5421

90.0641

93.7004

91.8577

90.3548

2023

95.1096

92.8346

91.4580

92.9075

91.9007

90.5269

2024

94.9861

92.9813

92.4445

91.0317

91.7488

90.2789

2025

94.8262

93.0034

93.2158

91.2360

92.2753

90.3502

2026

95.1140

93.9822

94.0622

90.9324

92.7671

90.3726

2027

94.7512

94.9071

94.7714

90.6175

93.5594

91.6265

2028

96.2444

95.8327

95.9435

93.2279

94.6947

92.2914

2029

98.2817

97.6457

97.6874

94.6187

96.5347

94.2474

Taxpayer Not Using Composite Method

2030

98.4834

98.4834

98.4834

96.0142

97.9102

95.6606

2031

 

98.4834

98.4834

98.4834

97.3886

98.4834

97.0886

Years after 2031

98.4834

98.4834

98.4834

98.4834

98.4834

98.4834

Taxpayer Using the Composite Method

2030

98.4834

98.4834

98.4834

96.7819

98.0023

96.5869

Years after 2030

Use composite discount factors published for the relevant accident year.*

* The relevant accident year is the accident year that is ten years prior to the specified taxable year.

Table 2 (part B)
Discount Factors Under Section 846 (percent)
For Losses Incurred in Accident Year 2020 in Long-Tail Lines of Business

Taxable Year Beginning in

Private Passenger Auto Liability/Medical

Products Liability — Claims-Made

Products Liability — Occurrence

Workers' Compensation

Long-Tail Composite

2020

95.4796

85.3166

87.3013

87.5556

92.4450

2021

95.0805

85.7949

88.6772

85.9962

91.3753

2022

95.0391

87.6480

89.4512

84.8651

91.0823

2023

94.6635

83.1315

90.8125

83.3180

89.8805

2024

93.9744

84.4598

89.4430

82.7387

88.2753

2025

94.0255

85.8393

89.4917

82.1898

88.1551

2026

94.2730

87.2786

90.4502

82.5646

88.1342

2027

94.8300

88.5618

91.4434

83.4400

88.6931

2028

95.4472

89.8703

91.8491

84.0701

89.9615

2029

97.6225

91.2045

94.1596

86.0229

91.7954

Taxpayer Not Using Composite Method

2030

98.4834

92.5645

95.5800

87.2812

93.1592

2031

98.4834

93.9501

97.0253

88.5644

94.5437

2032

98.4834

95.3597

98.4834

89.8730

95.9411

2033

98.4834

96.7878

98.4834

91.2073

97.3233

2034

98.4834

98.2068

98.4834

92.5675

98.4834

2035

98.4834

98.4834

98.4834

93.9532

98.4834

2036

98.4834

98.4834

98.4834

95.3630

98.4834

2037

98.4834

98.4834

98.4834

96.7916

98.4834

2038

98.4834

98.4834

98.4834

98.2114

98.4834

Years after 2038

98.4834

98.4834

98.4834

98.4834

98.4834

Taxpayer Using the Composite Method

2030

98.4834

94.5507

96.5457

91.0641

94.9230

Years after 2030

Use composite discount factors published for the relevant accident year.*

* The relevant accident year is the accident year that is ten years prior to the specified taxable year.

SECTION 4. DISCOUNT FACTORS FOR TAXABLE YEARS BEGINNING IN 2020

.01 The tables in this section 4 present separately for each line of business discount factors for losses incurred in the 2020 accident year and earlier accident years for use by insurance companies in computing discounted unpaid losses under § 846 and estimated salvage recoverable under § 832 in taxable years beginning in 2020. The discount factors for losses incurred in accident years 2019 and 2020 presented in these tables are determined by using the applicable interest rate for 2019 (3.09 percent, compounded semiannually) and 2020 (3.08 percent, compounded semiannually), respectively, under § 846(c). All other discount factors presented in these tables are determined by using the applicable interest rate for 2018, which is 2.94 percent, compounded semiannually. All of the discount factors presented in these tables are determined by using the payment patterns for the 2017 determination year determined by the Secretary under § 846(d) and by assuming all loss payments occur in the middle of the calendar year. See Rev. Proc. 2019-31 (prescribing discount factors for the 2019 accident year and “Revised Discount Factors” for accident years beginning before 2019).

.02 Table 4 separately provides discount factors for insurance companies that have elected to use the composite method of Notice 88-100. See Rev. Proc. 2002-74. The discount factors computed using the composite method are unrelated to the composite discount factors referred to in § 1.846-1(b)(1)(ii) and (4), which apply to lines of business for which the Secretary has not published discount factors. The composite discount factors for use with respect to such lines of business are labelled “Short-Tail Composite” (in Table 3, part B) and “Long-Tail Composite” (in Table 4, part B). The “Miscellaneous Casualty” discount factors referenced in § 1.846-1(b)(2) are not set forth in tables, but are equivalent to the “Short-Tail Composite” discount factors.

Table 3 (part A)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2020
Short-Tail Lines of Business

Accident Year

Auto Physical Damage

Fidelity/Surety

Financial Guaranty/Mortgage Guaranty

International

Other*

2020

98.3139

95.8052

95.5582

96.1310

96.9677

2019

96.9916

96.9916

96.9916

96.9916

96.9916

Years before 2019

98.5513

98.5513

98.5513

98.5513

98.5513

* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount factor for taxable year 2020 is 98.4834 percent.

Table 3 (part B)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2020
Short-Tail Lines of Business

Accident Year

Reinsurance — Nonproportional Assumed Financial Lines

Reinsurance — Nonproportional Assumed Liability

Reinsurance — Nonproportional Assumed Property

Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Burglary & Theft)

Warranty

Short-Tail Composite

2020

95.4035

94.6016

96.1125

97.3985

98.1106

96.8566

2019

96.9916

96.9916

96.9916

96.9916

96.9916

96.9916

Years before 2019

98.5513

98.5513

98.5513

98.5513

98.5513

98.5513

Table 4 (part A)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2020
Long-Tail Lines of Business

Accident Year

Commercial Auto/Truck Liability/Medical

Medical Professional Liability — Claims-Made

Medical Professional Liability — Occurrence

Multiple Peril Lines

Other Liability — Claims-Made

Other Liability — Occurrence

2020

93.7894

91.2887

86.3302

95.0975

90.4958

88.9133

2019

94.5084

92.2917

88.4392

93.3741

91.3061

89.7544

2018

95.2819

92.8576

90.4811

93.9651

92.1992

90.7535

2017

95.3204

93.1388

91.8194

93.2041

92.2415

90.9196

2016

95.2024

93.2805

92.7664

91.4064

92.0976

90.6836

2015

95.0498

93.3035

93.5069

91.6039

92.6040

90.7542

2014

95.3260

94.2423

94.3189

91.3154

93.0770

90.7788

2013

94.9804

95.1291

94.9993

91.0177

93.8378

91.9830

2012

96.4102

96.0160

96.1220

93.5200

94.9264

92.6228

2011

98.3585

97.7503

97.7902

94.8530

96.6876

94.4974

Taxpayer Not Using the Composite Method

2010

98.5513

98.5513

98.5513

96.1895

98.0033

95.8511

2009

98.5513

98.5513

98.5513

97.5045

98.5513

97.2176

Years before 2009

98.5513

98.5513

98.5513

98.5513

98.5513

98.5513

Taxpayer Using the Composite Method

Years before 2011

98.5513

98.5513

98.5513

96.9185

98.0920

96.7300

Table 4 (part B)
Discount Factors Under Section 846 (percent)
For Taxable Year(s) Beginning in 2020
Long-Tail Lines of Business

Accident Year

Private Passenger Auto Liability/Medical

Products Liability — Claims-Made

Products Liability — Occurrence

Workers' Compensation

Long-Tail Composite

2020

95.4796

85.3166

87.3013

87.5556

92.4450

2019

95.0654

85.7548

88.6442

85.9577

91.3501

2018

95.2520

88.1407

89.8860

85.4517

91.4469

2017

94.8920

83.8076

91.1924

83.9662

90.2933

2016

94.2325

85.0889

89.8810

83.4129

88.7546

2015

94.2824

86.4184

89.9309

82.8905

88.6421

2014

94.5205

87.8040

90.8527

83.2567

88.6258

2013

95.0550

89.0388

91.8072

84.1036

89.1661

2012

95.6473

90.2969

92.1992

84.7150

90.3858

2011

97.7282

91.5785

94.4133

86.5946

92.1457

Taxpayer Not Using the Composite Method

2010

98.5513

92.8838

95.7739

87.8065

93.4541

2009

98.5513

94.2124

97.1571

89.0414

94.7812

2008

98.5513

95.5629

98.5513

90.2995

96.1195

2007

98.5513

96.9299

98.5513

91.5813

97.4421

2006

98.5513

98.2868

98.5513

92.8867

98.5513

2005

98.5513

98.5513

98.5513

94.2154

98.5513

2004

98.5513

98.5513

98.5513

95.5661

98.5513

2003

98.5513

98.5513

98.5513

96.9334

98.5513

2002

98.5513

98.5513

98.5513

98.2913

98.5513

Years before 2002

98.5513

98.5513

98.5513

98.5513

98.5513

Taxpayer Using the Composite Method

Years before 2011

98.5513

94.7288

96.6903

91.2579

95.0968

SECTION 5. DRAFTING INFORMATION

The principal author of this revenue procedure is Megan McGuire of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact Ms. McGuire at (202) 317-6995 (not a toll-free call).

DOCUMENT ATTRIBUTES
  • Institutional Authors
    Internal Revenue Service
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2020-43371
  • Tax Analysts Electronic Citation
    2020 TNTF 214-18
    2020 TPR 45-7
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