Rev. Proc. 2021-54: Insurance companies, unpaid loss discount factors for 2021 accident year

Discount factors for the 2021 accident year for use by insurance companies in computing discounted unpaid losses under section 846

Unpaid loss discount factors for 2021 accident year

The IRS today released an advance version of Rev. Proc. 2021-54 concerning discount factors for the 2021 accident year for use by insurance companies in computing discounted unpaid losses under section 846.

Note: The version of Rev. Proc. 2021-54 released in December 2021 contained an error in Table 4. The IRS on January 12, 2022, corrected the table. Read TaxNewsFlash

Rev. Proc. 2021-54 [PDF 217 KB] applies to any insurance company that is required to discount unpaid losses under section 846 for a line of business using the discount factors, and also applies to any insurance company that is required to discount estimated salvage recoverable under section 832.

  • A set of tables in Rev. Proc. 2021-54 sets forth the discount factors.
  • The revenue procedure also provides (in table format) the discount factors for losses incurred in the 2020 accident year and earlier accident years for use in tax years beginning in 2021.

Rev. Proc. 2021-54 provides that the discount factors for losses incurred in accident year 2021 are determined by using the applicable interest rate for 2021 under section 846(c), which is 2.84% compounded semiannually. There are exceptions for the discount factors for long-tail lines of business provided for tax 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. 

Background

The discount factors are determined pursuant to section 846—a provision of the Code that was amended by the 2017 U.S. tax law (Pub. L. No. 115-97), the law that is commonly referred to as the “Tax Cuts and Jobs Act” (TCJA)—and the final regulations under section 846 as published in June 2019. Read TaxNewsFlash

 

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