Internal Revenue Bulletin:  2004-2 

January 12, 2004 

Rev. Proc. 2004-10


SECTION 1. PURPOSE

This revenue procedure prescribes the salvage discount factors for the 2003 accident year. These factors must be used to compute discounted estimated salvage recoverable under § 832 of the Internal Revenue Code.

SECTION 2. BACKGROUND

Section 832(b)(5)(A) requires that all estimated salvage recoverable (including that which cannot be treated as an asset for state accounting purposes) be taken into account in computing the deduction for losses incurred. Under § 832(b)(5)(A), paid losses are to be reduced by salvage and reinsurance recovered during the taxable year. This amount is adjusted to reflect changes in discounted unpaid losses on nonlife insurance contracts and in unpaid losses on life insurance contracts. An adjustment is then made to reflect any changes in discounted estimated salvage recoverable and in reinsurance recoverable.

Pursuant to § 832(b), the amount of estimated salvage is determined on a discounted basis in accordance with procedures established by the Secretary.

SECTION 3. SCOPE

This revenue procedure applies to any taxpayer that is required to discount estimated salvage recoverable under § 832.

SECTION 4. APPLICATION

.01 The following tables present separately for each line of business the discount factors under § 832 for the 2003 accident year. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2003, which is 5.27 percent, and by assuming all estimated salvage is recovered in the middle of each calendar year. See Rev. Proc. 2003-18, 2003-6 I.R.B. 439, for background regarding the tables.

.02 These tables must be used by taxpayers irrespective of whether they elected to discount unpaid losses using their own historical experience under § 846.

.03 Section V of Notice 88-100, 1988-2 C.B. 439, provides a composite discount factor to be used in determining the discounted unpaid losses for accident years that are not separately reported on the NAIC Annual Statement. The tables separately provide discount factors for taxpayers who elect to use the composite method. Rev. Proc. 2002-74, 2002-2 C.B. 980, clarifies that for certain insurance companies subject to tax under § 831 the composite method for discounting unpaid losses set forth in Notice 88-100, section V, 1988-2 C.B. 439, is permitted but not required. This revenue procedure further provides alternative methods for computing discounted unpaid losses that are permitted for insurance companies not using the composite method, and sets forth a procedure for insurance companies to obtain automatic consent of the Commissioner to change to one of the methods described in Rev. Proc. 2002-74.

.04 Tables.

Accident and Health (Other Than Disability Income or Credit Disability Insurance)
Taxpayers that do not use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable with respect to losses incurred in this line of business in the 2003 accident year as of the end of the 2003 and later taxable years.
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount all salvage recoverable in this line of business as of the end of the 2003 taxable year.
Auto Physical Damage
Tax Year DiscountFactors(%)
   
 2003 96.2554
 2004 95.0251
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2005 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2005 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Commercial Auto/Truck Liability/Medical
Tax Year DiscountFactors(%)
   
 2003 89.8985
 2004 89.5760
 2005 89.3200
 2006 89.8660
 2007 90.4447
 2008 89.8117
 2009 91.1941
 2010 92.3941
 2011 92.7106
 2012 95.0592
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Composite
Tax Year DiscountFactors(%)
   
 2003 89.8098
 2004 88.3565
 2005 87.7654
 2006 87.0910
 2007 85.7719
 2008 85.8519
 2009 85.5584
 2010 85.4976
 2011 85.6301
 2012 87.7378
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 89.9120
2014 92.1502
2015 94.4404
2016 96.7198
2017 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 91.2442 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Fidelity/Surety
Tax Year DiscountFactors(%)
   
 2003 92.5838
 2004 95.0251
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2005 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2005 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Financial Guaranty/Mortgage Guaranty
Tax Year DiscountFactors(%)
   
 2003 94.2115
 2004 95.0251
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2005 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2005 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
International (Composite)
Tax Year DiscountFactors(%)
   
 2003 89.8098
 2004 88.3565
 2005 87.7654
 2006 87.0910
 2007 85.7719
 2008 85.8519
 2009 85.5584
 2010 85.4976
 2011 85.6301
 2012 87.7378
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
   
   
2013 89.9120
2014 92.1502
2015 94.4404
2016 96.7198
2017 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 91.2442 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Medical Malpractice — Claims-Made
Tax Year DiscountFactors(%)
   
 2003 84.3980
 2004 78.8909
 2005 84.4191
 2006 81.6093
 2007 82.7520
 2008 76.1578
 2009 87.8015
 2010 91.2457
 2011 95.3664
 2012 97.4648
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Medical Malpractice — Occurrence
Tax Year DiscountFactors(%)
   
 2003 79.6421
 2004 80.9952
 2005 85.2445
 2006 87.0038
 2007 72.1989
 2008 83.9897
 2009 90.0478
 2010 93.6582
 2011 95.7277
 2012 97.4648
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Miscellaneous Casualty
Tax Year DiscountFactors(%)
   
 2003 95.6896
 2004 95.0251
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2005 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2005 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Multiple Peril Lines (Homeowners/Farmowners, Commercial Multiple Peril, and Special Liability (Ocean Marine, Aircraft (All Perils), Boiler and Machinery))
Tax Year DiscountFactors(%)
   
 2003 90.9145
 2004 88.9102
 2005 89.7851
 2006 89.4452
 2007 88.9585
 2008 90.4184
 2009 90.4744
 2010 90.6908
 2011 92.5143
 2012 94.8490
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 97.2277
2014 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.2293 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Other (Including Credit)
Tax Year DiscountFactors(%)
   
 2003 95.9179
 2004 95.0251
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2005 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2005 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Other Liability — Claims-Made
Tax Year DiscountFactors(%)
   
 2003 89.2780
 2004 78.5075
 2005 62.4035
 2006 86.1485
 2007 81.9557
 2008 81.0354
 2009 88.2681
 2010 92.3506
 2011 88.6256
 2012 90.8220
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 93.0754
2014 95.3564
2015 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 93.8216 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Other Liability — Occurrence
Tax Year DiscountFactors(%)
   
 2003 83.2582
 2004 84.8797
 2005 86.1298
 2006 82.2849
 2007 86.2602
 2008 89.0916
 2009 89.5094
 2010 91.8747
 2011 93.3837
 2012 95.6270
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Private Passenger Auto Liability/Medical
Tax Year DiscountFactors(%)
   
 2003 93.1921
 2004 92.9705
 2005 92.6585
 2006 91.7286
 2007 91.4818
 2008 90.3084
 2009 90.2405
 2010 90.3023
 2011 91.6647
 2012 93.9196
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 96.1460
2014 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 96.3834 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Products Liability — Claims-Made
Tax Year DiscountFactors(%)
   
 2003 84.9166
 2004 84.9800
 2005 86.8647
 2006  0.7583
 2007 77.5029
 2008 84.7211
 2009 89.8996
 2010 94.6740
 2011 18.9104
 2012 95.1273
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Products Liability — Occurrence
Tax Year DiscountFactors(%)
   
 2003 78.5645
 2004 81.5171
 2005 82.2229
 2006 85.2182
 2007 82.2629
 2008 86.2042
 2009 89.6780
 2010 90.5149
 2011 84.3756
 2012 86.4415
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 88.5733
2014 90.7701
2015 93.0258
2016 95.3146
2017 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 91.4228 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Reinsurance A (Nonproportional Assumed Property)
Tax Year DiscountFactors(%)
   
 2003 84.1377
 2004 80.8145
 2005 85.4580
 2006 89.6948
 2007 90.4119
 2008 92.3911
 2009 94.4085
 2010 95.8429
 2011 96.5134
 2012 97.4648
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 and later years 97.4648
   

Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.

Reinsurance B (Nonproportional Assumed Liability)
Tax Year DiscountFactors(%)
   
 2003 83.6204
 2004 81.0240
 2005 84.6899
 2006 82.2606
 2007 74.4127
 2008 78.4098
 2009 77.6451
 2010 80.1689
 2011 74.4036
 2012 82.8920
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 85.2223
2014 87.7390
2015 90.5105
2016 93.6633
2017 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 88.3351 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Reinsurance C (Nonproportional Assumed Financial Lines)
Tax Year DiscountFactors(%)
   
 2003 83.2609
 2004 84.0880
 2005 88.0193
 2006 85.0937
 2007 88.7104
 2008 80.8979
 2009 84.4733
 2010 92.2206
 2011 93.7574
 2012 95.9818
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
Tax Year DiscountFactors(%)
   
 2003 93.0692
 2004 95.0251
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2005 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 97.4648 percent to discount salvage recoverable as of the end of the 2005 taxable year with respect to losses incurred in this line of business in 2003 and prior years.
Workers’ Compensation
Tax Year DiscountFactors(%)
   
 2003 84.2536
 2004 85.6999
 2005 86.2016
 2006 86.1127
 2007 85.3503
 2008 86.2797
 2009 86.0424
 2010 86.2260
 2011 87.1469
 2012 89.2936
   
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount salvage recoverable as of the end of the tax year shown with respect to losses incurred in this line of business in the 2003 accident year.
   
2013 91.4992
2014 93.7481
2015 95.9726
2016 and later years 97.4648
   
Taxpayers that use the composite method of Notice 88-100 should use 92.2314 percent to discount salvage recoverable as of the end of the 2013 taxable year with respect to losses incurred in this line of business in 2003 and prior years.

DRAFTING INFORMATION

The principal author of this revenue procedure is Katherine A. Hossofsky of the Office of the Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure, contact Ms. Hossofsky at (202) 622-8435 (not a toll-free call).


More Internal Revenue Bulletins