Rev. Proc. 2020-48

Rev. Proc. 2020-48

SECTION 1. PURPOSE

This revenue procedure prescribes discount factors for the 2020 accident year for use by insurance companies in computing discounted unpaid losses under § 846 of the Internal Revenue Code and discounted estimated salvage recoverable under § 832. This revenue procedure also provides, for convenience, discount factors for losses incurred in the 2019 accident year and earlier accident years for use in taxable years beginning in 2020. The discount factors for accident years before 2020 were prescribed in Rev. Proc. 2019-31, 2019-33 I.R.B. 643. See Rev. Proc. 2019-31 and Rev. Proc. 2019-06, 2019-02 IRB 284, for background concerning the loss payment patterns and application of the discount factors.

>SECTION 2. SCOPE

This revenue procedure applies to any insurance company that is required to discount unpaid losses under § 846 for a line of business using the discount factors published by the Secretary, and also applies to any insurance company that is required to discount estimated salvage recoverable under § 832.

SECTION 3. DISCOUNT FACTORS FOR THE 2020 ACCIDENT YEAR

.01 The tables in this section 3 present separately for each line of business the discount factors for losses incurred in the 2020 accident year for use by insurance companies in computing discounted unpaid losses under § 846 and estimated salvage recoverable under § 832. All of the discount factors presented in these tables are determined by using the applicable interest rate for 2020 under § 846(c), which is 3.08 percent, compounded semiannually, and the payment patterns for the 2017 determination year determined by the Secretary under § 846(d). All of the discount factors presented in these tables are determined by assuming all loss payments occur 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. Tables 1 and 2 separately provide discount factors for insurance companies that have elected to use the composite method of Notice 88-100. See Rev. Proc. 2002-74, 2002-2 C.B. 980. The discount factors computed using the composite method are unrelated to the composite discount factors referred to in § 1.846-1(b)(1)(ii) and (4) of the Income Tax Regulations, which apply to lines of business for which the Secretary has not published discount factors. The composite discount factors for use with respect to such lines of business are labelled “Short-Tail Composite” (in Table 1, part B) and “Long-Tail Composite” (in Table 2, part B). The “Miscellaneous Casualty” discount factors referenced in § 1.846-1(b)(2) are not set forth in tables, but are equivalent to the “Short-Tail Composite” discount factors.

Table 1 (part A) Discount Factors Under Section 846 (percent) For Losses Incurred in Accident Year 2020 in Short-Tail Lines of Business

Table 1 (part B) Discount Factors Under Section 846 (percent) For Losses Incurred in Accident Year 2020 in Short-Tail Lines of Business

Table 2 (part A) Discount Factors Under Section 846 (percent) For Losses Incurred in Accident Year 2020 in Long-Tail Lines of Business

Table 2 (part B) Discount Factors Under Section 846 (percent) For Losses Incurred in Accident Year 2020 in Long-Tail Lines of Business

SECTION 4. DISCOUNT FACTORS FOR TAXABLE YEARS BEGINNING IN 2020

.01 The tables in this section 4 present separately for each line of business discount factors for losses incurred in the 2020 accident year and earlier accident years for use by insurance companies in computing discounted unpaid losses under § 846 and estimated salvage recoverable under § 832 in taxable years beginning in 2020. The discount factors for losses incurred in accident years 2019 and 2020 presented in these tables are determined by using the applicable interest rate for 2019 (3.09 percent, compounded semiannually) and 2020 (3.08 percent, compounded semiannually), respectively, under § 846(c). All other discount factors presented in these tables are determined by using the applicable interest rate for 2018, which is 2.94 percent, compounded semiannually. All of the discount factors presented in these tables are determined by using the payment patterns for the 2017 determination year determined by the Secretary under § 846(d) and by assuming all loss payments occur in the middle of the calendar year. See Rev. Proc. 2019-31 (prescribing discount factors for the 2019 accident year and “Revised Discount Factors” for accident years beginning before 2019).

.02 Table 4 separately provides discount factors for insurance companies that have elected to use the composite method of Notice 88-100. See Rev. Proc. 2002-74. The discount factors computed using the composite method are unrelated to the composite discount factors referred to in § 1.846-1(b)(1)(ii) and (4), which apply to lines of business for which the Secretary has not published discount factors. The composite discount factors for use with respect to such lines of business are labelled “Short-Tail Composite” (in Table 3, part B) and “Long-Tail Composite” (in Table 4, part B). The “Miscellaneous Casualty” discount factors referenced in § 1.846-1(b)(2) are not set forth in tables, but are equivalent to the “Short-Tail Composite” discount factors.

Table 3 (part A) Discount Factors Under Section 846 (percent) For Taxable Year(s) Beginning in 2020 Short-Tail Lines of Business

Table 3 (part B) Discount Factors Under Section 846 (percent) For Taxable Year(s) Beginning in 2020 Short-Tail Lines of Business

Table 4 (part A) Discount Factors Under Section 846 (percent) For Taxable Year(s) Beginning in 2020 Long-Tail Lines of Business

Table 4 (part B) Discount Factors Under Section 846 (percent) For Taxable Year(s) Beginning in 2020 Long-Tail Lines of Business

SECTION 5. DRAFTING INFORMATION

The principal author of this revenue procedure is Megan McGuire of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue procedure contact Ms. McGuire at (202) 317-6995 (not a toll-free number).

Section 846.—Discounted Unpaid Losses Defined.

26 C.F.R. 1.846-1: Application of discount factors.

Applicable unpaid loss discount factors for the 2020 accident year for purposes of section 846. See Rev. Proc. 2020-48, page 1459.

Section 832.—Insurance company taxable income.

26 C.F.R. 1.832-4: Gross income.

Applicable salvage discount factors for the 2020 accident year, which must be used to compute discounted estimated salvage recoverable under section 832. See Rev. Proc. 2020-48, page 1459.

1 See Notice 2020-61 for guidance regarding the contributions to which § 3608(a)(1) of the CARES Act applies and the interest adjustments pursuant to § 3608(a)(2).

2 Q&A-10 of Notice 2020-61 extended the due date for these elections to January 1, 2021.