Internal Revenue Bulletin:  2005-49 

December 5, 2005 

Rev. Proc. 2005-73


SECTION 1. PURPOSE

This revenue procedure prescribes the salvage discount factors for the 2005 accident year. These factors must be used to compute discounted estimated salvage recoverable under § 832 of the Internal Revenue Code.

SEC. 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.

SEC. 3. SCOPE

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

SEC. 4. APPLICATION

.01 The following tables present separately for each line of business the discount factors under § 832 for the 2005 accident year. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2005, which is 4.44 percent, and by assuming all estimated salvage is recovered in the middle of each calendar year. See Rev. Proc. 2003-18, 2003-1 C.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.

Tables of Factors to be Used to Discount Salvage Recoverable With Respect to Losses Incurred in Accident Year 2005
(Interest rate: 4.44 percent)
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 97.8513 percent to discount salvage recoverable with respect to losses incurred in this line of business in the 2005 accident year as of the end of the 2005 and later taxable years.
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount all salvage recoverable in this line of business as of the end of the 2005 taxable year.
Auto Physical Damage
Tax Year Discount Factors (%)
   
 2005 96.8175
 2006 95.7713
   
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 2005 accident year.
   
 2007 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2007 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Commercial Auto/Truck Liability/Medical
Tax Year Discount Factors (%)
   
 2005 91.3239
 2006 91.0477
 2007 90.8320
 2008 91.3071
 2009 91.8090
 2010 91.2746
 2011 92.4705
 2012 93.5064
 2013 93.7878
 2014 95.8004
   
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 2005 accident year.
   
 2015 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Composite
Tax Year Discount Factors (%)
   
 2005 91.2231
 2006 89.9591
 2007 89.4423
 2008 88.8551
 2009 87.7165
 2010 87.7929
 2011 87.5509
 2012 87.5159
 2013 87.6545
 2014 89.4906
   
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 2005 accident year.
   
 2015 91.3750
 2016 93.3052
 2017 95.2703
 2018 97.2162
 2019 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 92.9728 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Fidelity/Surety
Tax Year Discount Factors (%)
   
 2005 93.6793
 2006 95.7713
   
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 2005 accident year.
   
 2007 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2007 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Financial Guaranty/Mortgage Guaranty
Tax Year Discount Factors (%)
   
 2005 95.0705
 2006 95.7713
   
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 2005 accident year.
   
 2007 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2007 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
International (Composite)
Tax Year Discount Factors (%)
   
 2005 91.2231
 2006 89.9591
 2007 89.4423
 2008 88.8551
 2009 87.7165
 2010 87.7929
 2011 87.5509
 2012 87.5159
 2013 87.6545
 2014 89.4906
   
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 2005 accident year.
   
 2015 91.3750
 2016 93.3052
 2017 95.2703
 2018 97.2162
 2019 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 92.9728 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Medical Malpractice — Claims-Made
Tax Year Discount Factors (%)
   
 2005 86.4755
 2006 81.7167
 2007 86.5261
 2008 84.1162
 2009 85.1368
 2010 79.5241
 2011 89.5664
 2012 92.5368
 2013 96.0623
 2014 97.8513
   
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 2005 accident year.
   
 2015 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Medical Malpractice — Occurrence
Tax Year Discount Factors (%)
   
 2005 82.3660
 2006 83.5715
 2007 87.2656
 2008 88.7913
 2009 76.0729
 2010 86.2799
 2011 91.5010
 2012 94.5994
 2013 96.3703
 2014 97.8513
   
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 2005 accident year.
   
 2015 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Miscellaneous Casualty
Tax Year Discount Factors (%)
   
 2005 96.3339
 2006 95.7713
   
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 2005 accident year.
   
 2007 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2007 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Multiple Peril Lines (Homeowners/Farmowners, Commercial Multiple Peril, and Special Liability (Ocean Marine, Aircraft (All Perils), Boiler and Machinery))
Tax Year Discount Factors (%)
   
 2005 92.1974
 2006 90.4717
 2007 91.2273
 2008 90.9380
 2009 90.5278
 2010 91.7899
 2011 91.8465
 2012 92.0455
 2013 93.6189
 2014 95.6204
   
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 2005 accident year.
   
 2015 97.6492
 2016 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.6503 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Other (Including Credit)
Tax Year Discount Factors (%)
   
 2005 96.5291
 2006 95.7713
   
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 2005 accident year.
   
 2007 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2007 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Other Liability — Claims-Made
Tax Year Discount Factors (%)
   
 2005 90.7061
 2006 81.3335
 2007 67.4471
 2008 88.0410
 2009 84.4392
 2010 83.6931
 2011 89.9416
 2012 93.4492
 2013 90.2612
 2014 92.1610
   
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 2005 accident year.
   
 2015 94.1004
 2016 96.0538
 2017 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 95.1292 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Other Liability — Occurrence
Tax Year Discount Factors (%)
   
 2005 85.5304
 2006 86.9478
 2007 88.0380
 2008 84.7457
 2009 88.1991
 2010 90.6498
 2011 91.0248
 2012 93.0642
 2013 94.3646
 2014 96.2845
   
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 2005 accident year.
   
 2015 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Private Passenger Auto Liability/Medical
Tax Year Discount Factors (%)
   
 2005 94.1806
 2006 93.9873
 2007 93.7150
 2008 92.9128
 2009 92.6982
 2010 91.6917
 2011 91.6408
 2012 91.7062
 2013 92.8870
 2014 94.8239
   
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 2005 accident year.
   
 2015 96.7269
 2016 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 96.9284 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Products Liability — Claims-Made
Tax Year Discount Factors (%)
   
 2005 86.9346
 2006 86.9867
 2007 88.6095
 2008 14.1032
 2009 80.6321
 2010 86.8941
 2011 91.3609
 2012 95.4486
 2013 30.7119
 2014 95.8584
   
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 2005 accident year.
   
 2015 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Products Liability — Occurrence
Tax Year Discount Factors (%)
   
 2005 81.4063
 2006 83.9954
 2007 84.6302
 2008 87.2364
 2009 84.7065
 2010 88.1295
 2011 91.1267
 2012 91.8405
 2013 86.5573
 2014 88.3625
   
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 2005 accident year.
   
 2015 90.2160
 2016 92.1163
 2017 94.0579
 2018 96.0181
 2019 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 93.2359 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Reinsurance A (Nonproportional Assumed Property)
Tax Year Discount Factors (%)
   
 2005 86.3118
 2006 83.4802
 2007 87.5160
 2008 91.1738
 2009 91.8031
 2010 93.5092
 2011 95.2399
 2012 96.4668
 2013 97.0401
 2014 97.8513
   
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 2005 accident year.
   
 2015 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Reinsurance B (Nonproportional Assumed Liability)
Tax Year Discount Factors (%)
   
 2005 85.7554
 2006 83.4923
 2007 86.6760
 2008 84.5425
 2009 77.7160
 2010 81.2321
 2011 80.6015
 2012 82.8262
 2013 77.8936
 2014 85.2736
   
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 2005 accident year.
   
 2015 87.3145
 2016 89.5053
 2017 91.9023
 2018 94.6103
 2019 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 89.5188 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Reinsurance C (Nonproportional Assumed Financial Lines)
Tax Year Discount Factors (%)
   
 2005 85.5377
 2006 86.2730
 2007 89.6741
 2008 87.1586
 2009 90.2843
 2010 83.5843
 2011 86.7077
 2012 93.3620
 2013 94.6849
 2014 96.5870
   
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 2005 accident year.
   
 2015 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
Tax Year Discount Factors (%)
   
 2005 94.0942
 2006 95.7713
   
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 2005 accident year.
   
 2007 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount salvage recoverable as of the end of the 2007 taxable year with respect to losses incurred in this line of business in 2005 and prior years.
Workers’ Compensation
Tax Year Discount Factors (%)
   
 2005 86.3894
 2006 87.6481
 2007 88.0853
 2008 88.0120
 2009 87.3618
 2010 88.1750
 2011 87.9837
 2012 88.1613
 2013 88.9764
 2014 90.8396
   
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 2005 accident year.
   
 2015 92.7444
 2016 94.6769
 2017 96.5791
 2018 and later years 97.8513
   
Taxpayers that use the composite method of Notice 88-100 should use 94.0730 percent to discount salvage recoverable as of the end of the 2015 taxable year with respect to losses incurred in this line of business in 2005 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).


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