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Internal Revenue Bulletin:  2016-51 

December 19, 2016 

Rev. Proc. 2016–59


SECTION 1. PURPOSE

This revenue procedure prescribes the salvage discount factors for the 2016 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 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 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 the 2016 accident year. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2016, which is 1.56 percent, and by assuming all estimated salvage is recovered in the middle of the calendar year.

.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 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 annual statement approved by the National Association of Insurance Commissioners. 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, is permitted but not required. Rev. Proc. 2002–74 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 therein.

.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 99.2290 percent to discount salvage recoverable with respect to losses incurred in this line of business in the 2016 accident year as of the end of the 2016 and later taxable years.

Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount all salvage recoverable in this line of business as of the end of the 2016 taxable year.

Auto Physical Damage

Tax Year Discount Factors (%)
2016 98.9012
2017 98.4669
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 2016 accident year.  
2018 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2018 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Commercial Auto/Truck Liability/Medical

Tax Year Discount Factors (%)
2016 97.1365
2017 96.8308
2018 97.0777
2019 96.7064
2020 96.9932
2021 96.8099
2022 94.3972
2023 93.3971
2024 94.9982
2025 95.7201
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 2016 accident year.  
2026 96.4475
2027 97.1788
2028 97.9099
2029 98.6269
2030 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 97.1357 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Composite

Tax Year Discount Factors (%)
2016 96.9439
2017 96.8171
2018 96.9416
2019 96.0697
2020 96.3473
2021 96.0938
2022 96.0154
2023 96.3954
2024 96.4109
2025 97.1429
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 2016 accident year.  
2026 97.8757
2027 98.5976
2028 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 98.2524 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Fidelity/Surety

Tax Year Discount Factors (%)
2016 97.5442
2017 98.4669
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 2016 accident year.  
2018 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2018 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Financial Guaranty/Mortgage Guaranty

Tax Year Discount Factors (%)
2016 97.2630
2017 98.4669
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 2016 accident year.  
2018 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2018 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

International (Composite)

Tax Year Discount Factors (%)
2016 96.9439
2017 96.8171
2018 96.9416
2019 96.0697
2020 96.3473
2021 96.0938
2022 96.0154
2023 96.3954
2024 96.4109
2025 97.1429
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 2016 accident year.  
2026 97.8757
2027 98.5976
2028 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 98.2524 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Medical Professional Liability — Claims-Made

Tax Year Discount Factors (%)
2016 96.5406
2017 97.0385
2018 95.6716
2019 97.2703
2020 97.4023
2021 97.6753
2022 98.1949
2023 98.5464
2024 98.5353
2025 99.2290
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 2016 accident year.  
2026 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Medical Professional Liability — Occurrence

Tax Year Discount Factors (%)
2016 96.9122
2017 98.0946
2018 97.7852
2019 98.4996
2020 97.9271
2021 98.7202
2022 98.3540
2023 98.3987
2024 97.3615
2025 98.0900
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 2016 accident year.  
2026 98.7938
2027 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 98.8774 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Miscellaneous Casualty

Tax Year Discount Factors (%)
2016 97.9036
2017 98.4669
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 2016 accident year.  
2018 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2018 taxable year with respect to losses incurred in this line of business in 2016 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 (%)
2016 97.3546
2017 97.3274
2018 97.6245
2019 96.5274
2020 97.4327
2021 97.7088
2022 97.7950
2023 97.7390
2024 97.5499
2025 99.2290
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 2016 accident year.  
2026 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Other (Including Credit)

Tax Year Discount Factors (%)
2016 98.3183
2017 98.4669
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 2016 accident year.  
2018 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2018 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Other Liability — Claims-Made

Tax Year Discount Factors (%)        
2016 96.4147        
2017 96.6325        
2018 96.6603        
2019 97.3254        
2020 97.3517        
2021 97.4480        
2022 98.0897        
2023 98.0735        
2024 98.2338        
2025 98.9443        
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 2016 accident year.          
2026 and later years 99.2290        
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.          

Other Liability – Occurrence

Tax Year Discount Factors (%)
2016 94.5756
2017 95.2376
2018 95.9306
2019 96.3122
2020 96.7612
2021 97.3807
2022 97.4860
2023 97.4330
2024 98.5057
2025 99.2290
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 2016 accident year.  
2026 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Private Passenger Auto Liability/Medical

Tax Year Discount Factors (%)
2016 97.8611
2017 97.7880
2018 97.7715
2019 97.4240
2020 97.4156
2021 97.4991
2022 97.3643
2023 97.5496
2024 98.2703
2025 98.9853
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 2016 accident year.  
2026 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Products Liability — Claims-Made

Tax Year Discount Factors (%)
2016 94.2878
2017 95.1999
2018 94.1633
2019 97.2406
2020 96.0735
2021 99.0044
2022 97.9881
2023 91.9449
2024 99.0448
2025 99.2290
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 2016 accident year.  
2026 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Products Liability — Occurrence

Tax Year Discount Factors (%)
2016 94.7954
2017 94.8540
2018 95.3519
2019 96.1073
2020 96.4444
2021 96.9520
2022 96.9120
2023 98.1796
2024 97.8452
2025 98.5720
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 2016 accident year.  
2026 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Reinsurance — Nonproportional Assumed Property

Tax Year Discount Factors (%)
2016 96.0218
2017 97.3451
2018 96.1342
2019 95.4143
2020 96.6974
2021 96.1040
2022 98.3107
2023 94.5059
2024 97.7680
2025 98.5096
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 2016 accident year.  
2026 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Reinsurance — Nonproportional Assumed Liability

Tax Year Discount Factors (%)
2016 92.8739
2017 94.2242
2018 91.1182
2019 91.9045
2020 95.3016
2021 97.0444
2022 96.5643
2023 96.8858
2024 95.8989
2025 98.1496
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 2016 accident year.  
2026 98.8541
2027 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 98.9166 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Reinsurance — Nonproportional Assumed Financial Lines

Tax Year Discount Factors (%)
2016 93.3899
2017 94.3763
2018 96.4484
2019 96.5268
2020 97.3112
2021 96.2333
2022 97.3277
2023 97.2956
2024 99.1055
2025 99.2290
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 2016 accident year.  
2026 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

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

Tax Year Discount Factors (%)
2016 97.9965
2017 98.4669
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 2016 accident year.  
2018 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2018 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Warranty

Tax Year Discount Factors (%)
2016 97.7297
2017 98.4669
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 2016 accident year.  
2018 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 99.2290 percent to discount salvage recoverable as of the end of the 2018 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

Workers’ Compensation

Tax Year Discount Factors (%)
2016 95.1952
2017 96.0854
2018 96.5588
2019 95.7091
2020 95.3661
2021 94.9814
2022 95.3348
2023 96.1542
2024 96.3142
2025 97.0492
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 2016 accident year.  
2026 97.7882
2027 98.5257
2028 and later years 99.2290
Taxpayers that use the composite method of Notice 88–100 should use 98.2013 percent to discount salvage recoverable as of the end of the 2026 taxable year with respect to losses incurred in this line of business in 2016 and prior years.  

SECTION 5. DRAFTING INFORMATION

The principal author of this revenue procedure is Sharon Y.Horn of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact Ms. Horn at (202) 317-4426 (not a toll free number).


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