Rev. Proc. 2021-54

Rev. Proc. 2021-54

SECTION 1. PURPOSE

This revenue procedure prescribes discount factors for the 2021 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 2020 accident year and earlier accident years for use in taxable years beginning in 2021. The discount factors for accident years before 2021 were prescribed in Rev. Proc. 2020-48, 2020-49 I.R.B. 1459. See Rev. Proc. 2019-31, 2019-33 I.R.B. 643, and Rev. Proc. 2019-06, 2019-02 I.R.B. 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 2021 ACCIDENT YEAR

.01 The tables in this section 3 present separately for each line of business the discount factors for losses incurred in the 2021 accident year for use by insurance companies in computing discounted unpaid losses under § 846 and estimated salvage recoverable under § 832. The discount factors presented in this section are generally determined by using the applicable interest rate for 2021 under § 846(c), which is 2.84 percent, compounded semiannually. The exceptions are the discount factors for long-tail lines of business provided for taxable years beginning in 2031, which are computed using discount factors applicable to multiple accident years. All discount factors 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)

* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount factor for taxable year 2021 is 98.5999 percent. This is also the discount factor used in later taxable years for taxpayers not using the composite method. For taxpayers using the composite method, the discount factor for losses incurred in 2021 is the discount factor published for Accident and Health lines of business for losses incurred in the accident year coinciding with the taxable year.

**The relevant accident year is the accident year that is two years prior to the specified taxable year.

Table 1 (part B)

*The relevant accident year is the accident year that is two years prior to the specified taxable year.

Table 2 (part A)

*The relevant accident year is the accident year that is ten years prior to the specified taxable year.

Table 2 (part B)

*The relevant accident year is the accident year that is ten years prior to the specified taxable year.

SECTION 4. DISCOUNT FACTORS FOR TAXABLE YEARS BEGINNING IN 2021

.01 The tables in this section 4 present separately for each line of business discount factors for losses incurred in the 2021 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 2021.

.02 Tables 3 and 4 separately provide 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)

* For Accident and Health lines of business (other than disability income or credit disability insurance), the discount factor for taxable year 2021 is 98.5999 percent.

Table 3 (part B)

Table 4 (part A)

Table 4 (part B)

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 2021 accident year for purposes of section 846. See Rev. Proc. 2021-54, page 903.

Section 832.—Insurance company taxable income.

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

Applicable salvage discount factors for the 2021 accident year, which must be used to compute discounted estimated salvage recoverable under section 832. See Rev. Proc. 2021-54, page 903.