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Revenue Procedure 2005-72 December 5, 2005

Loss Payment Patterns and Discount
Factors for the 2005 Accident Year

SECTION 1. PURPOSE

This revenue procedure prescribes the loss payment patterns and discount factors for the 2005 accident year. These factors will be used for computing discounted unpaid losses under § 846 of the Internal Revenue Code. See Rev. Proc. 2003-17, 2003-1 C.B. 427, for background concerning the loss payment patterns and application of the discount factors.

SEC. 2. SCOPE

This revenue procedure applies to any taxpayer that is required to discount its unpaid losses under § 846 for a line of business using discount factors published by the Secretary.

SEC. 3. TABLES OF DISCOUNT FACTORS

.01 The following tables present separately for each line of business the discount factors under § 846 for accident year 2005. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2005, which is 4.44 percent, and by assuming all loss payments occur in the middle of the calendar year.

.02 If the groupings of individual lines of business on the annual statement change, taxpayers must discount the unpaid losses on the affected lines of business in accordance with the discounting patterns that would have applied to those unpaid losses based on their classification on the 2000 annual statement. See Rev. Proc. 2003-17, 2003-1 C.B. 427, section 2, for additional background on discounting under section 846 and the use of the Secretary’s tables.

.03 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. The tables separately provide discount factors for taxpayers who elect to use the composite method of section V of Notice 88-100. See Rev. Proc. 2002-74, 2002-2 C.B. 980.

.04 Section 2.03(4) of Rev. Proc. 2003-17 requested comments as to whether a methodology should be adopted to smooth the raw payment data and thus produce a more stable pattern of discount factors. This issue will be addressed in the new determination year, which is 2007. Accordingly, taxpayers may still submit comments that should include a reference to Rev. Proc. 2005-72 on this issue to the following address:

 CC:PA:LPD:PR (Rev. Proc. 2005-72), room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Comments may be hand delivered between the hours of  8 a.m. and 4 p.m. to CC:PA:LPD (Rev. Proc. 2005-72), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224. Alternatively, e-mail comments to  Notice.Comments@irscounsel.treas.gov. All comments will be available for public inspection and copying.

.05 Tables.

Tables of Factors to be Used to Discount Unpaid Losses Incurred in Accident Year 2005
 
(Interest rate: 4.44 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 97.8513 percent to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the 2005 and later taxable years.
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount all unpaid losses in this line of business that are outstanding at the end of the 2005 taxable year.
Auto Physical Damage
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 89.6468 89.6468 10.3532 10.1113 97.6638
2006 99.6845 10.0377 0.3155 0.3022 95.7713
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
2007 and later years 0.1578 0.1578 0.1544 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2007 taxable year.
Commercial Auto/Truck Liability/Medical
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 28.8244 28.8244 71.1756 65.3965 91.8806
2006 54.9871 26.1626 45.0129 41.5630 92.3357
2007 72.8039 17.8168 27.1961 25.2004 92.6616
2008 85.0572 12.2533 14.9428 13.7969 92.3312
2009 91.6276 6.5704 8.3724 7.6948 91.9064
2010 94.9514 3.3239 5.0486 4.6396 91.8992
2011 97.0453 2.0938 2.9547 2.7058 91.5744
2012 98.1574 1.1121 1.8426 1.6894 91.6838
2013 98.7370 0.5796 1.2630 1.1721 92.7985
2014 99.1070 0.3700 0.8930 0.8460 94.7324
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
2015   0.3700 0.5230 0.5054 96.6342
2016 and later years 0.3700 0.1530 0.1497 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 96.8695 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2015 taxable year.
Composite
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 40.9985 40.9985 59.0015 53.2420 90.2384
2006 65.8439 24.8454 34.1561 30.2149 88.4613
2007 77.5023 11.6583 22.4977 19.6421 87.3071
2008 84.6221 7.1198 15.3779 13.2380 86.0849
2009 90.2455 5.6234 9.7545 8.0789 82.8227
2010 92.2780 2.0325 7.7220 6.3605 82.3688
2011 94.3974 2.1195 5.6026 4.4769 79.9089
2012 95.2526 0.8552 4.7474 3.8017 80.0811
2013 96.2792 1.0266 3.7208 2.9214 78.5162
2014 96.4323 0.1531 3.5677 2.8946 81.1355
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
2015   0.1531 3.4145 2.8667 83.9550
2016   0.1531 3.2614 2.8374 87.0012
2017   0.1531 3.1083 2.8069 90.3057
2018   0.1531 2.9551 2.7751 93.9070
2019 and later years 0.1531 2.8020 2.7418 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 88.8907 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2015 taxable year.
Fidelity/Surety
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 38.3328 38.3328 61.6672 57.8107 93.7463
2006 58.8485 20.5156 41.1515 39.4114 95.7713
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
2007 and later years 20.5758 20.5758 20.1336 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2007 taxable year.
Financial Guaranty/Mortgage Guaranty
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 4.0723 4.0723 95.9277 90.2226 94.0527
2006 40.7639 36.6916 59.2361 56.7312 95.7713
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
2007 and later years 29.6180 29.6180 28.9816 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2007 taxable year.
International (Composite)
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 40.9985 40.9985 59.0015 53.2420 90.2384
2006 65.8439 24.8454 34.1561 30.2149 88.4613
2007 77.5023 11.6583 22.4977 19.6421 87.3071
2008 84.6221 7.1198 15.3779 13.2380 86.0849
2009 90.2455 5.6234 9.7545 8.0789 82.8227
2010 92.2780 2.0325 7.7220 6.3605 82.3688
2011 94.3974 2.1195 5.6026 4.4769 79.9089
2012 95.2526 0.8552 4.7474 3.8017 80.0811
2013 96.2792 1.0266 3.7208 2.9214 78.5162
2014 96.4323 0.1531 3.5677 2.8946 81.1355
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
           
2015   0.1531 3.4145 2.8667 83.9550
2016   0.1531 3.2614 2.8374 87.0012
2017   0.1531 3.1083 2.8069 90.3057
2018   0.1531 2.9551 2.7751 93.9070
2019 and later 0.1531 2.8020 2.7418 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 88.8907 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2015 taxable year.
Medical Malpractice — Claims-Made
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 7.3447 7.3447 92.6553 82.5239 89.0655
2006 29.0191 21.6744 70.9809 64.0376 90.2180
2007 53.3108 24.2917 46.6892 42.0557 90.0759
2008 69.1517 15.8409 30.8483 27.7343 89.9053
2009 82.0981 12.9464 17.9019 15.7350 87.8955
2010 86.3995 4.3014 13.6005 12.0377 88.5095
2011 89.7111 3.3116 10.2889 9.1879 89.2991
2012 92.4688 2.7577 7.5312 6.7776 89.9934
2013 94.5163 2.0475 5.4837 4.9860 90.9248
2014 95.7635 1.2471 4.2365 3.9329 92.8323
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
           
2015   1.2471 2.9894 2.8330 94.7672
2016   1.2471 1.7422 1.6842 96.6692
2017 and later years 1.2471 0.4951 0.4845 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 95.5661 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2015 taxable year.
Medical Malpractice — Occurrence
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
           
2005 0.8316 0.8316 99.1684 83.1082 83.8051
2006 7.4573 6.6257 92.5427 80.0270 86.4758
2007 23.5575 16.1002 76.4425 67.1265 87.8130
2008 41.0062 17.4487 58.9938 52.2751 88.6111
2009 55.5832 14.5770 44.4168 39.6990 89.3782
2010 68.9413 13.3581 31.0587 27.8102 89.5407
2011 78.2095 9.2682 21.7905 19.5732 89.8245
2012 82.8727 4.6632 17.1273 15.6766 91.5303
2013 86.3178 3.4451 13.6822 12.8519 93.9319
2014 91.0834 4.7656 8.9166 8.5523 95.9147
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
           
2015 and later years 4.7656 4.1510 4.0618 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2015 taxable year.
Miscellaneous Casualty
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 79.7790 79.7790 20.2210 19.4754 96.3125
2006 94.9417 15.1627 5.0583 4.8444 95.7713
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
           
2007 and later years 2.5292 2.5292 2.4748 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2007 taxable year.
Multiple Peril Lines (Homeowners/Farmowners, Commercial Multiple Peril, and Special Liability (Ocean Marine, Aircraft (All Perils), Boiler and Machinery))
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 59.7445 59.7445 40.2555 37.1445 92.2719
2006 81.0347 21.2902 18.9653 17.0360 89.8274
2007 87.3325 6.2978 12.6675 11.3563 89.6494
2008 91.0659 3.7334 8.9341 8.0452 90.0503
2009 95.1781 4.1122 4.8219 4.1999 87.1002
2010 95.7605 0.5824 4.2395 3.7911 89.4249
2011 97.0539 1.2933 2.9461 2.6377 89.5320
2012 97.6441 0.5903 2.3559 2.1516 91.3303
2013 98.7037 1.0596 1.2963 1.1643 89.8184
2014 98.6217 -0.0821 1.3783 1.2999 94.3059
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
           
2015   0.5226 0.8558 0.8235 96.2318
2016 and later years 0.5226 0.3332 0.3260 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 96.6358 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2015 taxable year.
Other (Including Credit)
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 69.1729 69.1729 30.8271 29.6244 96.0986
2006 91.2168 22.0439 8.7832 8.4118 95.7713
Taxpayers that do not use the composite method of Notice 88-100 should use the following factor to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
           
2007 and later years 4.3916 4.3916 4.2973 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 97.8513 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2007 taxable year.
Other Liability — Claims-Made
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 14.9618 14.9618 85.0382 74.3656 87.4496
2006 36.2113 21.2494 63.7887 55.9513 87.7135
2007 54.2876 18.0763 45.7124 39.9623 87.4211
2008 64.2163 9.9288 35.7837 31.5899 88.2801
2009 73.2732 9.0569 26.7268 23.7367 88.8123
2010 80.5748 7.3016 19.4252 17.3286 89.2072
2011 87.6200 7.0452 12.3800 10.8982 88.0304
2012 89.9155 2.2955 10.0845 9.0361 89.6042
2013 93.3946 3.4791 6.6054 5.8818 89.0459
2014 94.6170 1.2223 5.3830 4.8938 90.9113
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
           
2015   1.2223 4.1607 3.8619 92.8183
2016   1.2223 2.9383 2.7841 94.7528
2017   1.2223 1.7160 1.6586 96.6546
2018 and later years 1.2223 0.4936 0.4830 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 94.1292 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2015 taxable year.
Other Liability — Occurrence
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 19.1133 19.1133 80.8867 68.6311 84.8484
2006 36.4434 17.3301 63.5566 53.9677 84.9128
2007 52.1648 15.7215 47.8352 40.2972 84.2417
2008 63.2383 11.0734 36.7617 30.7698 83.7006
2009 72.0780 8.8397 27.9220 23.1021 82.7380
2010 75.9021 3.8241 24.0979 20.2198 83.9068
2011 82.9305 7.0284 17.0695 13.9348 81.6357
2012 85.1441 2.2136 14.8559 12.2913 82.7368
2013 89.3006 4.1565 10.6994 8.5893 80.2780
2014 89.9898 0.6892 10.0102 8.2663 82.5786
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
           
2015   0.6892 9.3210 7.9290 85.0657
2016   0.6892 8.6318 7.5767 87.7764
2017   0.6892 7.9426 7.2087 90.7606
2018   0.6892 7.2533 6.8244 94.0867
2019 and later years 0.6892 6.5641 6.4231 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 88.8152 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2015 taxable year.
Private Passenger Auto Liability/Medical
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 43.1926 43.1926 56.8074 53.1786 93.6121
2006 72.2008 29.0082 27.7992 25.8946 93.1486
2007 84.5632 12.3625 15.4368 14.4104 93.3510
2008 91.9316 7.3684 8.0684 7.5200 93.2034
2009 95.8729 3.9413 4.1271 3.8261 92.7060
2010 97.7804 1.9075 2.2196 2.0465 92.2040
2011 98.7957 1.0153 1.2043 1.0999 91.3257
2012 99.2491 0.4535 0.7509 0.6853 91.2646
2013 99.5195 0.2703 0.4805 0.4394 91.4469
2014 99.6353 0.1159 0.3647 0.3405 93.3821
Taxpayers that do not use the composite method of Notice 88-100 should use the following factors to discount unpaid losses incurred in this line of business in the 2005 accident year and that are outstanding at the end of the tax year shown.
           
2015   0.1159 0.2488 0.2373 95.3548
2016   0.1159 0.1330 0.1294 97.3165
2017 and later years 0.1159 0.0171 0.0167 97.8513
Taxpayers that use the composite method of Notice 88-100 should use 96.0257 percent to discount unpaid losses incurred in this line of business in 2005 and prior years and that are outstanding at the end of the 2015 taxable year.
Products Liability — Claims-Made
Tax Year Estimated Cumulative Losses Paid (%) Estimated Losses Paid Each Year (%) Unpaid Losses at Year End (%) Discounted Unpaid Losses at Year End (%) Discount Factors (%)
2005 6.5804 6.5804 93.4196 79.0050 84.5700
2006 26.7183 20.1379 73.2817 61.9327 84.5131
2007 43.1834 16.4652 56.8166 47.8558 84.2286
2008 43.9209 0.7375 56.0791 49.2269 87.7812
2009 54.3806 10.4597 45.6194 40.7232 89.2673
2010 78.3630 23.9824 21.6370 18.0223 83.2938
2011 82.8643 4.5013 17.1357