rp-04-70.pdf

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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. 2004-70

SECTION 1. PURPOSE

This revenue procedure prescribes the salvage discount factors for the 2004 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
discounted unpaid losses on nonlife insurance contracts and in unpaid losses on life insurance

2
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 2004 accident year. All the discount factors presented in this section were
determined using the applicable interest rate under ' 846(c) for 2004, which is 4.82 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
discounted unpaid losses that are permitted for insurance companies not using the composite

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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 2004

(Interest rate: 4.82 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 97.6738
percent to discount salvage recoverable with respect to losses incurred in this line of
business in the 2004 accident year as of the end of the 2004 and later taxable years.

Taxpayers that use the composite method of Notice 88-100 should use 97.6738 percent
to discount all salvage recoverable in this line of business as of the end of the 2004
taxable year.

Auto Physical Damage

Discount
Tax Year Factors
(%)

2004 96.5590
2005 95.4281

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 2004 accident year.

2006 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2006

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taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

5
Commercial Auto/Truck Liability/Medical

Discount
Tax Year Factors
(%)

2004 90.6645
2005 90.3669
2006 90.1327
2007 90.6408
2008 91.1785
2009 90.5988
2010 91.8814
2011 92.9935
2012 93.2915
2013 95.4594

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 2004 accident year.

2014 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

6
Composite

Discount
Tax Year Factors
(%)

2004 90.5683
2005 89.2161
2006 88.6645
2007 88.0367
2008 86.8142
2009 86.8926
2010 86.6271
2011 86.5809
2012 86.7177
2013 88.6805

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 2004 accident year.

2014 90.6998
2015 92.7729
2016 94.8883
2017 96.9880
2018 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 91.9391 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

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Fidelity/Surety

Discount
Tax Year Factors
(%)

2004 93.1746
2005 95.4281

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 2004 accident year.

2006 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2006
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

8
Financial Guaranty/Mortgage Guaranty

Discount
Tax Year Factors
(%)

2004 94.6749
2005 95.4281

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 2004 accident year.

2006 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2006
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

9
International (Composite)

Discount
Tax Year Factors
(%)

2004 90.5683
2005 89.2161
2006 88.6645
2007 88.0367
2008 86.8142
2009 86.8926
2010 86.6271
2011 86.5809
2012 86.7177
2013 88.6805

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 2004 accident year.

2014 90.6998
2015 92.7729
2016 94.8883
2017 96.9880
2018 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 91.9391 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

10
Medical Malpractice -- Claims-Made

Discount
Tax Year Factors
(%)

2004 85.5093
2005 80.4030
2006 85.5474
2007 82.9525
2008 84.0312
2009 77.9665
2010 88.7516
2011 91.9419
2012 95.7422
2013 97.6738

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 2004 accident year.

2014 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

11
Medical Malpractice -- Occurrence

Discount
Tax Year Factors
(%)

2004 81.0996
2005 82.3752
2006 86.3279
2007 87.9623
2008 74.2782
2009 85.2215
2010 90.8308
2011 94.1660
2012 96.0748
2013 97.6738

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 2004 accident year.

2014 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

12
Miscellaneous Casualty

Discount
Tax Year Factors
(%)

2004 96.0374
2005 95.4281

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 2004 accident year.

2006 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2006
taxable year with respect to losses incurred in this
line of business in 2004 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))

Discount
Tax Year Factors
(%)

2004 91.6039
2005 89.7492
2006 90.5601
2007 90.2475
2008 89.8022
2009 91.1562
2010 91.2128
2011 91.4205
2012 93.1099
2013 95.2655

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 2004 accident year.

2014 97.4556
2015 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.4560 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

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Other (Including Credit)

Discount
Tax Year Factors
(%)

2004 96.2479
2005 95.4281

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 2004 accident year.

2006 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2006
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

15
Other Liability -- Claims-Made

Discount
Tax Year Factors
(%)

2004 90.0420
2005 80.0175
2006 65.1028
2007 87.1628
2008 83.2875
2009 82.4626
2010 89.1681
2011 92.9417
2012 89.5057
2013 91.5434

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 2004 accident year.

2014 93.6283
2015 95.7330
2016 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 94.7277 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

16
Other Liability -- Occurrence

Discount
Tax Year Factors
(%)

2004 84.4755
2005 85.9883
2006 87.1531
2007 83.6055
2008 87.3020
2009 89.9297
2010 90.3252
2011 92.5157
2012 93.9128
2013 95.9821

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 2004 accident year.

2014 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

17
Private Passenger Auto Liability/Medical

Discount
Tax Year Factors
(%)

2004 93.7245
2005 93.5180
2006 93.2272
2007 92.3657
2008 92.1360
2009 91.0524
2010 90.9939
2011 91.0582
2012 92.3235
2013 94.4076

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 2004 accident year.

2014 96.4598
2015 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 96.6736 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

18
Products Liability -- Claims-Made

Discount
Tax Year Factors
(%)

2004 85.9966
2005 86.0537
2006 87.7977
2007 7.9001
2008 79.1822
2009 85.8894
2010 90.6864
2011 95.0912
2012 25.2668
2013 95.5221

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 2004 accident year.

2014 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

19
Products Liability -- Occurrence

Discount
Tax Year Factors
(%)

2004 80.0842
2005 82.8436
2006 83.5123
2007 86.2999
2008 83.5735
2009 87.2379
2010 90.4562
2011 91.2267
2012 85.5469
2013 87.4740

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 2004 accident year.

2014 89.4572
2015 91.4954
2016 93.5825
2017 95.6945
2018 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 92.6255 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

20
Reinsurance A (Nonproportional Assumed Property)

Discount
Tax Year Factors
(%)

2004 85.3031
2005 82.2450
2006 86.5640
2007 90.4906
2008 91.1611
2009 92.9938
2010 94.8571
2011 96.1798
2012 96.7980
2013 97.6738

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 2004 accident year.

2014 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

21
Reinsurance B (Nonproportional Assumed Liability)

Discount
Tax Year Factors
(%)

2004 84.7610
2005 82.3424
2006 85.7505
2007 83.4780
2008 76.1754
2009 79.9172
2010 79.2255
2011 81.5908
2012 76.2736
2013 84.1702

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 2004 accident year.

2014 86.3467
2015 88.6896
2016 91.2606
2017 94.1745
2018 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 87.7819 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

22
Reinsurance C (Nonproportional Assumed Financial Lines)

Discount
Tax Year Factors
(%)

2004 84.4808
2005 85.2596
2006 88.9070
2007 86.2016
2008 89.5553
2009 82.3408
2010 85.6757
2011 92.8358
2012 94.2578
2013 96.3087

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 2004 accident year.

2014 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

23
Special Property (Fire, Allied Lines, Inland Marine, Earthquake, Glass, Burglary and
Theft)

Discount
Tax Year Factors
(%)

2004 93.6220
2005 95.4281

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 2004 accident year.

2006 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 97.6738 percent to discount
salvage recoverable as of the end of the 2006
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

24
Workers' Compensation

Discount
Tax Year Factors
(%)

2004 85.3979
2005 86.7440
2006 87.2113
2007 87.1308
2008 86.4289
2009 87.2964
2010 87.0843
2011 87.2655
2012 88.1306
2013 90.1258

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 2004 accident year.

2014 92.1703
2015 94.2492
2016 96.3002
2017 and later years 97.6738

Taxpayers that use the composite method of Notice
88-100 should use 93.3819 percent to discount
salvage recoverable as of the end of the 2014
taxable year with respect to losses incurred in this
line of business in 2004 and prior years.

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).