rp-09-56.pdf

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CASE-MIS Number: RP-14179-09

# 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. 2009-56

# SECTION 1. PURPOSE

This revenue procedure prescribes the salvage discount factors for the 2009 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 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.

## SECTION. 3. SCOPE

This revenue procedure applies to any taxpayer that is required to discount estimated
salvage recoverable under § 832.

## SECTION 4. APPLICATION

.01 The following tables present separately for each line of business the discount factors
under § 832 for the 2009 accident year. All the discount factors presented in this section were
determined using the applicable interest rate under § 846(c) for 2009, which is 4.06 percent, and
by assuming all estimated salvage is recovered in the middle of each calendar year. See Rev.
Proc. 2008-11, 2008-3 I.R.B. 301, 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, 2002-2 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.
This revenue procedure further provides alternative methods for computing discounted unpaid

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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.

# Tables of Factors to be Used to Discount Salvage Recoverable With Respect to Losses Incurred in Accident Year 2009

# (Interest rate: 4.06 percent)

## 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 98.0298
percent to discount salvage recoverable with respect to losses incurred in this line of
business in the 2009 accident year as of the end of the 2009 and later taxable years.

Taxpayers that use the composite method of Notice 88-100 should use 98.0298 percent
to discount all salvage recoverable in this line of business as of the end of the 2009
taxable year.

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## Auto Physical Damage

Tax Year

Discount Factors (%)

2009

97.2331

2010

96.1174

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 2009 accident year.

2011 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2011
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Commercial Auto/Truck Liability/Medical

Tax Year

Discount Factors (%)

2009

92.3526

2010

92.2970

2011

92.6408

2012

92.9897

2013

93.7281

2014

93.5170

2015

91.9508

2016

92.8642

2017

96.2378

2018

98.0298

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 2009 accident year.

2019 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Composite

Tax Year

Discount Factors (%)

2009

92.3690

2010

92.1172

2011

91.9402

2012

91.7659

2013

91.1438

2014

90.2174

2015

91.0647

2016

92.4105

2017

94.4361

2018

96.2605

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 2009 accident year.

2019 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 97.8009 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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Fidelity/Surety

Tax Year

Discount Factors (%)

2009

93.6954

2010

96.1174

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 2009 accident year.

2011 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2011
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Financial Guaranty/Mortgage Guaranty

Tax Year

Discount Factors (%)

2009

94.7421

2010

96.1174

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 2009 accident year.

2011 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2011
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## International (Composite)

Tax Year

Discount Factors (%)

2009

92.3690

2010

92.1172

2011

91.9402

2012

91.7659

2013

91.1438

2014

90.2174

2015

91.0647

2016

92.4105

2017

94.4361

2018

96.2605

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 2009 accident year.

2019 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 97.8009 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Medical Malpractice -- Claims-Made

Tax Year

Discount Factors (%)

2009

92.6642

2010

93.7424

2011

92.1505

2012

92.7778

2013

92.0831

2014

87.6889

2015

84.3189

2016

90.2868

2017

96.4445

2018

98.0298

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 2009 accident year.

2019 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Medical Malpractice -- Occurrence

Tax Year

Discount Factors (%)

2009

85.5177

2010

89.9300

2011

92.2898

2012

84.2693

2013

94.7905

2014

91.4234

2015

93.0145

2016

95.8751

2017

97.0989

2018

98.0298

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 2009 accident year.

2019 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Miscellaneous Casualty

Tax Year

Discount Factors (%)

2009

96.5837

2010

96.1174

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 2009 accident year.

2011 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2011
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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

Tax Year

Discount Factors (%)

2009

93.0068

2010

92.3990

2011

92.3201

2012

92.2569

2013

91.4462

2014

89.8725

2015

91.0239

2016

93.4483

2017

94.8485

2018

96.6142

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 2009 accident year.

2019 and later years

98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Other (Including Credit)

Tax Year

Discount Factors (%)

2009

95.6448

2010

96.1174

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 2009 accident year.

2011 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2011
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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Other Liability -- Claims-Made

Discount

Tax Year

Factors (%)

2009

88.4208

2010

89.5374

2011

87.6521

2012

90.8781

2013

92.3590

2014

94.2379

2015

93.1673

2016

91.7716

2017

97.3613

2018

98.0298

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 2009 accident year.

2019 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Other Liability -- Occurrence

Discount

Tax Year

Factors (%)

2009

87.1236

2010

88.1600

2011

90.4878

2012

91.2470

2013

90.6851

2014

90.8000

2015

90.2668

2016

93.0020

2017

95.7619

2018

97.5722

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 2009 accident year.

2019 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Private Passenger Auto Liability/Medical

Discount

Tax Year

Factors (%)

2009

94.5329

2010

94.5579

2011

94.3102

2012

93.4459

2013

92.8620

2014

92.0891

2015

92.9858

2016

94.5440

2017

94.6149

2018

96.4088

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 2009 accident year.

2019and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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Products Liability -- Claims-Made

Tax Year

Discount Factors (%)

2009

88.9426

2010

51.3741

2011

53.7803

2012

90.7115

2013

80.1341

2014

91.4320

2015

59.5121

2016

90.5055

2017

91.6367

2018

92.7680

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 2009 accident year.

2019

94.5598

2020

96.3623

2021 and later years

98.0298

Taxpayers that use the composite method of Notice
88-100 should use 95.6711 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Products Liability -- Occurrence

Tax Year

Discount Factors (%)

2009

87.6369

2010

89.7198

2011

91.6030

2012

92.4224

2013

92.8704

2014

90.4185

2015

91.0511

2016

94.0066

2017

94.2757

2018

96.1335

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 2009 accident year.

2019 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 97.2089 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Reinsurance -- Nonproportional Assumed Property

Tax Year

Discount Factors (%)

2009

91.0976

2010

92.7443

2011

95.6984

2012

80.1417

2013

89.8643

2014

81.5378

2015

51.4095

2016

92.8399

2017

73.3181

2018

88.1043

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 2009 accident year.

2019

89.8547

2020

91.6751

2021

93.5877

2022

95.6459

2023 and later years

98.0298

Taxpayers that use the composite method of Notice
88-100 should use 91.4735 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Reinsurance -- Nonproportional Assumed Liability

Tax Year

Discount Factors (%)

2009

86.7636

2010

90.0422

2011

91.4998

2012

88.6312

2013

90.7036

2014

91.5709

2015

91.4636

2016

93.2257

2017

95.1632

2018

96.9140

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 2009 accident year.

2019 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 96.5025 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Reinsurance -- Nonproportional Assumed Financial Lines

Tax Year

Discount Factors (%)

2009

87.1652

2010

85.9016

2011

89.9069

2012

78.5011

2013

90.2511

2014

80.2802

2015

90.4154

2016

90.8197

2017

97.5152

2018

98.0298

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 2009 accident year.

2019 and later years
98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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

Tax Year

Discount Factors (%)

2009

94.8844

2010

96.1174

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 2009 accident year.

2011 and later years

98.0298

Taxpayers that use the composite method of Notice
88-100 should use 98.0298 percent to discount
salvage recoverable as of the end of the 2011
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

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## Workers' Compensation

Tax Year

Discount Factors (%)

2009

88.3785

2010

90.4189

2011

91.2195

2012

91.1364

2013

89.6372

2014

88.2223

2015

88.8169

2016

88.5309

2017

90.7105

2018

92.4766

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 2009 accident year.

2019

94.2879

2020

96.1430

2021 and later years

98.0298

Taxpayers that use the composite method of Notice
88-100 should use 95.7330 percent to discount
salvage recoverable as of the end of the 2019
taxable year with respect to losses incurred in this
line of business in 2009 and prior years.

## DRAFTING INFORMATION

The principal author of this revenue procedure is Sarah E. Swan of the Office of the
Associate Chief Counsel (Financial Institutions & Products). For further information regarding
this revenue procedure, contact Ms. Swan at (202)622-8443 (not a toll free call).