Internal Revenue Bulletin:  2007-3 

January 16, 2007 

Rev. Proc. 2007-10


SECTION 1. PURPOSE

This revenue procedure prescribes the salvage discount factors for the 2006 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 2006 accident year. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2006, which is 3.98 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 2006
(Interest rate: 3.98 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 98.0675 percent to discount salvage recoverable with respect to losses incurred in this line of business in the 2006 accident year as of the end of the 2006 and later taxable years.
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount all salvage recoverable in this line of business as of the end of the 2006 taxable year.
Auto Physical Damage
Tax Year Discount Factors (%)
   
2006 97.1334
2007 96.1907
   
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 2006 accident year.
   
2008 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2008 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Commercial Auto/Truck Liability/Medical
Tax Year Discount Factors (%)
   
2006 92.1380
2007 91.8882
2008 91.6949
2009 92.1286
2010 92.5860
2011 92.1065
2012 93.1945
2013 94.1358
2014 94.3956
2015 96.2168
   
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 2006 accident year.
   
2016 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Composite
Tax Year Discount Factors (%)
   
2006 92.0337
2007 90.8802
2008 90.4072
2009 89.8712
2010 88.8367
2011 88.9101
2012 88.6960
2013 88.6734
2014 88.8118
2015 90.4886
   
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 2006 accident year.
   
2016 92.2048
2017 93.9577
2018 95.7372
2019 97.4944
2020 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 93.6350 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Fidelity/Surety
Tax Year Discount Factors (%)
   
2006 94.2975
2007 96.1907
   
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 2006 accident year.
   
2008 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2008 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Financial Guaranty/Mortgage Guaranty
Tax Year Discount Factors (%)
   
2006 95.5547
2007 96.1907
   
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 2006 accident year.
   
2008 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2008 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
International (Composite)
Tax Year Discount Factors (%)
   
2006 92.0337
2007 90.8802
2008 90.4072
2009 89.8712
2010 88.8367
2011 88.9101
2012 88.6960
2013 88.6734
2014 88.8118
2015 90.4886
   
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 2006 accident year.
   
2016 92.2048
2017 93.9577
2018 95.7372
2019 97.4944
2020 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 93.6350 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Medical Malpractice — Claims-Made
Tax Year Discount Factors (%)
   
2006 87.6804
2007 83.3538
2008 87.7437
2009 85.5621
2010 86.5072
2011 81.4476
2012 90.5680
2013 93.2658
2014 96.4532
2015 98.0675
   
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 2006 accident year.
   
2016 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Medical Malpractice — Occurrence
Tax Year Discount Factors (%)
   
2006 83.9442
2007 85.0591
2008 88.4295
2009 89.8198
2010 78.2945
2011 87.5838
2012 92.3237
2013 95.1299
2014 96.7311
2015 98.0675
   
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 2006 accident year.
   
2016 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Miscellaneous Casualty
Tax Year Discount Factors (%)
   
2006 96.6963
2007 96.1907
   
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 2006 accident year.
   
2008 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2008 taxable year with respect to losses incurred in this line of business in 2006 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 (%)
   
2006 92.9300
2007 91.3642
2008 92.0510
2009 91.7902
2010 91.4227
2011 92.5705
2012 92.6261
2013 92.8131
2014 94.2424
2015 96.0540
   
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 2006 accident year.
   
2016 97.8851
2017 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 97.8836 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Other (Including Credit)
Tax Year Discount Factors (%)
   
2006 96.8727
2007 96.1907
   
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 2006 accident year.
   
2008 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2008 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Other Liability — Claims-Made
Tax Year Discount Factors (%)
   
2006 91.5341
2007 82.9787
2008 70.3678
2009 89.1316
2010 85.8677
2011 85.2144
2012 90.8949
2013 94.0739
2014 91.1910
2015 92.9193
   
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 2006 accident year.
   
2016 94.6785
2017 96.4455
2018 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 95.5684 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Other Liability — Occurrence
Tax Year Discount Factors (%)
   
2006 86.8418
2007 88.1391
2008 89.1356
2009 86.1576
2010 89.3069
2011 91.5372
2012 91.8852
2013 93.7371
2014 94.9176
2015 96.6537
   
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 2006 accident year.
   
2016 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Private Passenger Auto Liability/Medical
Tax Year Discount Factors (%)
   
2006 94.7409
2007 94.5642
2008 94.3153
2009 93.5866
2010 93.3908
2011 92.4796
2012 92.4373
2013 92.5029
2014 93.5781
2015 95.3333
   
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 2006 accident year.
   
2016 97.0529
2017 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 97.2228 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Products Liability — Claims-Made
Tax Year Discount Factors (%)
   
2006 88.1034
2007 88.1497
2008 89.6228
2009 21.8302
2010 82.4271
2011 88.1330
2012 92.1902
2013 95.8876
2014 37.3999
2015 96.2692
   
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 2006 accident year.
   
2016 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Products Liability — Occurrence
Tax Year Discount Factors (%)
   
2006 83.0564
2007 85.4302
2008 86.0203
2009 88.3994
2010 86.1113
2011 89.2324
2012 91.9553
2013 92.5997
2014 87.8074
2015 89.4589
   
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 2006 accident year.
   
2016 91.1499
2017 92.8787
2018 94.6400
2019 96.4133
2020 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 92.7786 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Reinsurance A (Nonproportional Assumed Property)
Tax Year Discount Factors (%)
   
2006 87.5637
2007 85.0097
2008 88.6909
2009 92.0150
2010 92.5920
2011 94.1411
2012 95.7082
2013 96.8174
2014 97.3356
2015 98.0675
   
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 2006 accident year.
   
2016 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Reinsurance B (Nonproportional Assumed Liability)
Tax Year Discount Factors (%)
   
2006 86.9992
2007 84.9315
2008 87.8351
2009 85.8777
2010 79.6478
2011 82.8774
2012 82.3201
2013 84.3658
2014 79.9064
2015 86.6394
   
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 2006 accident year.
   
2016 88.5090
2017 90.5090
2018 92.6892
2019 95.1430
2020 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 91.2561 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Reinsurance C (Nonproportional Assumed Financial Lines)
Tax Year Discount Factors (%)
   
2006 86.8509
2007 87.5301
2008 90.6247
2009 88.3441
2010 91.1866
2011 85.1209
2012 87.9777
2013 94.0073
2014 95.2074
2015 96.9266
   
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 2006 accident year.
   
2016 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
Tax Year Discount Factors (%)
   
2006 94.6724
2007 96.1907
   
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 2006 accident year.
   
2008 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount salvage recoverable as of the end of the 2008 taxable year with respect to losses incurred in this line of business in 2006 and prior years.
Workers’ Compensation
Tax Year Discount Factors (%)
   
2006 87.6219
2007 88.7710
2008 89.1706
2009 89.1058
2010 88.5191
2011 89.2639
2012 89.0972
2013 89.2683
2014 90.0193
2015 91.7175
   
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 2006 accident year.
   
2016 93.4488
2017 95.2002
2018 96.9195
2019 and later years 98.0675
   
Taxpayers that use the composite method of Notice 88-100 should use 94.5920 percent to discount salvage recoverable as of the end of the 2016 taxable year with respect to losses incurred in this line of business in 2006 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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