US Internal Revenue Service: rp-04-10

8/14/2019 US Internal Revenue Service: rp-04-10

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.201: Rulings and determination letters

(Also Part I, Sections 832, 846; 1.832-4, 1.846-1.)

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.

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


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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 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, 2002-51 I.R.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. 419, is permitted

but not required. This revenue procedure further provides alternative methods for computing


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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 percentto discount all salvage recoverable in this line of business as of the end of the 2003

taxable year.

Auto Physical Damage

DiscountTax Year Factors

(%)

2003 96.25542004 95.0251

Taxpayers that do not use the composite method of Notice 88-100 should use the following factor todiscount salvage recoverable as of the end of the taxyear shown with respect to losses incurred in thisline of business in the 2003 accident year.

2005 and later years 97.4648

Taxpayers that use the composite method of Notice88-100 should use 97.4648 percent to discountsalvage recoverable as of the end of the 2005taxable year with respect to losses incurred in thisline of business in 2003 and prior years.


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Commercial Auto/Truck Liability/Medical


(%)

2003 89.89852004 89.57602005 89.32002006 89.86602007 90.44472008 89.81172009 91.19412010 92.39412011 92.71062012 95.0592





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Composite


(%)

2003 89.80982004 88.35652005 87.76542006 87.09102007 85.77192008 85.85192009 85.55842010 85.49762011 85.63012012 87.7378

Taxpayers that do not use the composite method of Notice 88-100 should use the following factors todiscount salvage recoverable as of the end of the taxyear shown with respect to losses incurred in thisline of business in the 2003 accident year.

2013 89.91202014 92.15022015 94.44042016 96.71982017 and later years 97.4648



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Fidelity/Surety


(%)

2003 92.58382004 95.0251





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Financial Guaranty/Mortgage Guaranty


(%)

2003 94.21152004 95.0251





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International (Composite)


(%)

2003 89.80982004 88.35652005 87.76542006 87.09102007 85.77192008 85.85192009 85.55842010 85.49762011 85.63012012 87.7378


2013 89.91202014 92.15022015 94.44042016 96.71982017 and later years 97.4648



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Medical Malpractice -- Claims-Made


(%)

2003 84.39802004 78.89092005 84.41912006 81.60932007 82.75202008 76.15782009 87.80152010 91.24572011 95.36642012 97.4648





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Medical Malpractice -- Occurrence


(%)

2003 79.64212004 80.99522005 85.24452006 87.00382007 72.19892008 83.98972009 90.04782010 93.65822011 95.72772012 97.4648





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Miscellaneous Casualty


(%)

2003 95.68962004 95.0251





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Multiple Peril Lines (Homeowners/Farmowners, Commercial Multiple Peril, and SpecialLiability (Ocean Marine, Aircraft (All Perils), Boiler and Machinery))


(%)

2003 90.91452004 88.91022005 89.78512006 89.44522007 88.95852008 90.41842009 90.47442010 90.69082011 92.5143

2012

94.8490Taxpayers that do not use the composite method of

Notice 88-100 should use the following factors todiscount salvage recoverable as of the end of the taxyear shown with respect to losses incurred in thisline of business in the 2003 accident year.

2013 97.22772014 and later years 97.4648



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Other (Including Credit)


(%)

2003 95.91792004 95.0251





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Other Liability -- Claims-MadeDiscount

Tax Year Factors(%)

2003 89.27802004 78.50752005 62.40352006 86.14852007 81.95572008 81.03542009 88.26812010 92.35062011 88.62562012 90.8220


2013 93.07542014 95.35642015 and later years 97.4648



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Other Liability -- OccurrenceDiscount

Tax Year Factors(%)

2003 83.25822004 84.87972005 86.12982006 82.28492007 86.26022008 89.09162009 89.50942010 91.87472011 93.38372012 95.6270





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Private Passenger Auto Liability/MedicalDiscount

Tax Year Factors(%)

2003 93.19212004 92.97052005 92.65852006 91.72862007 91.48182008 90.30842009 90.24052010 90.30232011 91.66472012 93.9196


2013 96.14602014 and later years 97.4648



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Products Liability -- Claims-Made


(%)

2003 84.91662004 84.98002005 86.86472006 0.75832007 77.50292008 84.72112009 89.89962010 94.67402011 18.91042012 95.1273





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Products Liability -- Occurrence


(%)

2003 78.56452004 81.51712005 82.22292006 85.21822007 82.26292008 86.20422009 89.67802010 90.51492011 84.37562012 86.4415


2013 88.57332014 90.77012015 93.02582016 95.31462017 and later years 97.4648



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Reinsurance A (Nonproportional Assumed Property)


(%)

2003 84.13772004 80.81452005 85.45802006 89.69482007 90.41192008 92.39112009 94.40852010 95.84292011 96.51342012 97.4648





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Reinsurance B (Nonproportional Assumed Liability)


(%)

2003 83.62042004 81.02402005 84.68992006 82.26062007 74.41272008 78.40982009 77.64512010 80.16892011 74.40362012 82.8920


2013 85.22232014 87.73902015 90.51052016 93.66332017 and later years 97.4648



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Reinsurance C (Nonproportional Assumed Financial Lines)


(%)

2003 83.26092004 84.08802005 88.01932006 85.09372007 88.71042008 80.89792009 84.47332010 92.22062011 93.75742012 95.9818





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Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary andTheft)


(%)

2003 93.06922004 95.0251


2005 and later years 97.4648Taxpayers that use the composite method of Notice88-100 should use 97.4648 percent to discountsalvage recoverable as of the end of the 2005taxable year with respect to losses incurred in thisline of business in 2003 and prior years.


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Workers' Compensation


(%)

2003 84.25362004 85.69992005 86.20162006 86.11272007 85.35032008 86.27972009 86.04242010 86.22602011 87.14692012 89.2936


2013 91.49922014 93.74812015 95.97262016 and later years 97.4648


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).

US Internal Revenue Service: rp-04-10

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