Internal Revenue Bulletin:  2012-49 

December 3, 2012 

Rev. Proc. 2012-45


SECTION 1. PURPOSE

This revenue procedure prescribes the salvage discount factors for 2012. 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 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. TABLES OF DISCOUNT FACTORS

.01 The following tables present separately for each line of business the discount factors under § 832 for 2012. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2012, which is 2.89 percent, and by assuming all estimated salvage is recovered 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. Rev. Proc. 2002-74, section 3.03, 2002-2 C.B. 980, provides that an insurance company that elects to use the composite method of Notice 88-100 must use the same method to compute discounted estimated salvage recoverable. Accordingly, the tables separately provide discount factors for taxpayers who elect to use the composite method of section V of Notice 88-100.

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

.03 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 98.5856 percent to discount salvage recoverable with respect to losses incurred in this line of business in the 2012 accident year as of the end of the 2012 and later taxable years.
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount all salvage recoverable in this line of business as of the end of the 2012 taxable year.
Auto Physical Damage
Tax Year Discount Factors (%)
   
2012 97.9926
2013 97.2010
   
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 2012 accident year.
   
2014 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Commercial Auto/Truck Liability/Medical
Tax Year Discount Factors (%)
   
2012 94.8601
2013 94.3170
2014 94.7640
2015 94.1089
2016 94.6321
2017 94.3280
2018 90.0593
2019 88.2417
2020 91.0508
2021 92.3107
   
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 2012 accident year.
   
2022 93.5910
2023 94.8890
2024 96.1977
2025 97.4916
2026 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 93.5910 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Composite
Tax Year Discount Factors (%)
   
2012 94.5210
2013 94.2990
2014 94.5290
2015 92.9773
2016 93.4682
2017 93.0095
2018 92.8551
2019 93.5193
2020 93.5262
2021 94.8250
   
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 2012 accident year.
   
2022 96.1362
2023 97.4384
2024 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 96.1362 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Fidelity/Surety
Tax Year Discount Factors (%)
   
2012 95.5378
2013 97.2010
   
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 2012 accident year.
   
2014 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Financial Guaranty/Mortgage Guaranty
Tax Year Discount Factors (%)
   
2012 95.0291
2013 97.2010
   
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 2012 accident year.
   
2014 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
International (Composite)
Tax Year Discount Factors (%)
   
2012 94.5210
2013 94.2990
2014 94.5290
2015 92.9773
2016 93.4682
2017 93.0095
2018 92.8551
2019 93.5193
2020 93.5262
2021 94.8250
   
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 2012 accident year.
   
2022 96.1362
2023 97.4384
2024 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 96.1362 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
   
Medical Malpractice — Claims-Made
Tax Year Discount Factors (%)
   
2012 93.7912
2013 94.6803
2014 92.2134
2015 95.0710
2016 95.3003
2017 95.7832
2018 96.7165
2019 97.3503
2020 97.3252
2021 98.5856
   
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 2012 accident year.
   
2022 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Medical Malpractice — Occurrence
Tax Year Discount Factors (%)
   
2012 94.4161
2013 96.5442
2014 95.9802
2015 97.2713
2016 96.2322
2017 97.6681
2018 97.0089
2019 97.0932
2020 95.2155
2021 96.5222
   
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 2012 accident year.
   
2022 97.7949
2023 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 97.7949 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Miscellaneous Casualty
Tax Year Discount Factors (%)
   
2012 96.1880
2013 97.2010
   
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 2012 accident year.
   
2014 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2012 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 (%)
   
2012 95.2320
2013 95.1821
2014 95.7186
2015 93.7419
2016 95.3602
2017 95.8534
2018 96.0053
2019 95.8968
2020 95.5350
2021 98.5856
   
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 2012 accident year.
   
2022 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Other (Including Credit)
Tax Year Discount Factors (%)
   
2012 96.9381
2013 97.2010
   
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 2012 accident year.
   
2014 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Other Liability — Claims-Made
Tax Year Discount Factors (%)
   
2012 93.5677
2013 93.9483
2014 93.9860
2015 95.1734
2016 95.2144
2017 95.3785
2018 96.5322
2019 96.4985
2020 96.7811
2021 98.0683
   
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 2012 accident year.
   
2022 and later years 98.5856
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Other Liability — Occurrence
Tax Year Discount Factors (%)
   
2012 90.3389
2013 91.4894
2014 92.7055
2015 93.3713
2016 94.1617
2017 95.2667
2018 95.4478
2019 95.3361
2020 97.2714
2021 98.5856
   
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 2012 accident year.
   
2022 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Private Passenger Auto Liability/Medical
Tax Year Discount Factors (%)
   
2012 96.1315
2013 95.9985
2014 95.9758
2015 95.3522
2016 95.3346
2017 95.4812
2018 95.2304
2019 95.5517
2020 96.8469
2021 98.1429
   
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 2012 accident year.
   
2022 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Products Liability — Claims-Made
Tax Year Discount Factors (%)
   
2012 89.8196
2013 91.4110
2014 89.5038
2015 95.0117
2016 92.8700
2017 98.1820
2018 96.3577
2019 85.3703
2020 98.2509
2021 98.5856
   
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 2012 accident year.
   
2022 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 97.2650 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Products Liability — Occurrence
Tax Year Discount Factors (%)
   
2012 90.7468
2013 90.8255
2014 91.6861
2015 93.0159
2016 93.6033
2017 94.5013
2018 94.4114
2019 96.6942
2020 96.0812
2021 97.3920
   
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 2012 accident year.
   
2022 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Reinsurance — Nonproportional Assumed Property
Tax Year Discount Factors (%)
   
2012 92.8721
2013 95.2410
2014 93.0843
2015 91.7774
2016 94.0583
2017 92.9687
2018 96.9437
2019 90.0756
2020 95.9421
2021 97.2787
   
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 2012 accident year.
   
2022 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 95.1349 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Reinsurance — Nonproportional Assumed Liability
Tax Year Discount Factors (%)
   
2012 87.4545
2013 89.8069
2014 84.2710
2015 85.5707
2016 91.5781
2017 94.6877
2018 93.8198
2019 94.3842
2020 92.5740
2021 96.6295
   
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 2012 accident year.
   
2022 97.9045
2023 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 97.9045 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Reinsurance — Nonproportional Assumed Financial Lines
Tax Year Discount Factors (%)
   
2012 88.2387
2013 89.9441
2014 93.6256
2015 93.7540
2016 95.1568
2017 93.2046
2018 95.1579
2019 95.0763
2020 98.3612
2021 98.5856
   
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 2012 accident year.
   
2022 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and Theft)
Tax Year Discount Factors (%)
   
2012 96.3560
2013 97.2010
   
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 2012 accident year.
   
2014 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Warranty
Tax Year Discount Factors (%)
   
2012 96.8733
2013 97.2010
   
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 2012 accident year.
   
2014 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 98.5856 percent to discount salvage recoverable as of the end of the 2014 taxable year with respect to losses incurred in this line of business in 2012 and prior years.
Workers’ Compensation
Tax Year Discount Factors (%)
   
2012 91.4448
2013 93.0206
2014 93.8697
2015 92.3671
2016 91.7503
2017 91.0454
2018 91.6474
2019 93.0907
2020 93.3550
2021 94.6576
   
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 2012 accident year.
   
2022 95.9786
2023 97.3078
2024 and later years 98.5856
   
Taxpayers that use the composite method of Notice 88-100 should use 96.5709 percent to discount salvage recoverable as of the end of the 2022 taxable year with respect to losses incurred in this line of business in 2012 and prior years.

SECTION 5. DRAFTING INFORMATION

The principal author of this revenue procedure is David Remus of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure, contact Mr. Remus on (202) 622-3970 (not a toll-free call).


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