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IRS releases 2019 loss reserve and salvage discount factors for insurers

On July 22, 2019, the Internal Revenue Service (IRS) released Revenue Procedure 2019-31, which contains the discount factors for the 2019 accident years for use by insurance companies in computing discounted unpaid losses and estimated salvage recoverable.

The tables provided in section 5 of this revenue procedure present the discount factors for each line of business for losses incurred in the 2019 accident and earlier accident years. Insurance companies must use these discount factors in taxable years ending on or after June 17, 2019.

On July 22, 2019, the IRS also released Revenue Procedure 2019-30. This revenue procedure contains guidance, which allows taxpayers to use either the final revised discount factors included in Revenue Procedure 2019-31 (Revised Discount Factors) or the proposed discount factors contained in Revenue Procedure 2019-06 (Proposed Discount Factors) for the 2018 tax year. If the taxpayer used the revised discount factors for unpaid losses for the 2018 tax year and for computing the transitional adjustment, no additional modification is required. Any taxpayer that used the proposed discount factors for unpaid losses for the 2018 tax year and for computing the transitional adjustment will need to calculate a “remainder” transitional adjustment in 2019. This remainder transitional adjustment is the difference between the discounted unpaid losses at the end of 2017 determined using the proposed discount factors and the amount of discounted unpaid losses using the revised discount factors. The remainder transitional adjustment will be recognized over the remaining seven years (2019 and the six succeeding taxable years).

Download Baker Tilly’s 2019 Unpaid Loss and Salvage Discount Factors Template based on IRS Revenue Procedure 2019-31.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

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