Revenue Procedure 2007-09, Insurance Companies; Loss Reserves; Discounting Unpaid Losses

SECTION 1. PURPOSE

This revenue procedure prescribes the loss payment patterns and discount factors for the 2006 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 2006. All the discount factors presented in this section were determined using the applicable interest rate under § 846(c) for 2006, which is 3.98 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. 2007-9 on this issue to the following address:

CC:PA:LPD:PR (Rev. Proc. 2007-9), 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. 2007-9), 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 2006

(Interest rate: 3.98 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 98.0675 percent to discount unpaid losses incurred in this line of business in the 2006 accident year and that are outstanding at the end of the 2006 and later taxable years.
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount all unpaid losses in this line of business that are outstanding at the end of the 2006 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 (%)
2006	89.6468	89.6468	10.3532	10.1356	97.8981
2007	99.6845	10.0377	0.3155	0.3035	96.1907
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 2006 accident year and that are outstanding at the end of the tax year shown.
2008 and later years		0.1578	0.1578	0.1547	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2008 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 (%)
2006	28.8244	28.8244	71.1756	65.9439	92.6497
2007	54.9871	26.1626	45.0129	41.8903	93.0628
2008	72.8039	17.8168	27.1961	25.3896	93.3575
2009	85.0572	12.2533	14.9428	13.9054	93.0572
2010	91.6276	6.5704	8.3724	7.7589	92.6725
2011	94.9514	3.3239	5.0486	4.6784	92.6676
2012	97.0453	2.0938	2.9547	2.7295	92.3768
2013	98.1574	1.1121	1.8426	1.7041	92.4822
2014	98.7370	0.5796	1.2630	1.1809	93.4978
2015	99.1070	0.3700	0.8930	0.8506	95.2504
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 2006 accident year and that are outstanding at the end of the tax year shown.
2016		0.3700	0.5230	0.5072	96.9692
2017 and later years		0.3700	0.1530	0.1501	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 97.1689 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2016 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 (%)
2006	40.9985	40.9985	59.0015	53.7593	91.1153
2007	65.8439	24.8454	34.1561	30.5639	89.4832
2008	77.5023	11.6583	22.4977	19.8923	88.4193
2009	84.6221	7.1198	15.3779	13.4239	87.2935
2010	90.2455	5.6234	9.7545	8.2239	84.3094
2011	92.2780	2.0325	7.7220	6.4788	83.8997
2012	94.3974	2.1195	5.6026	4.5754	81.6658
2013	95.2526	0.8552	4.7474	3.8854	81.8439
2014	96.2792	1.0266	3.7208	2.9933	80.4470
2015	96.4323	0.1531	3.5677	2.9562	82.8624
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 2006 accident year and that are outstanding at the end of the tax year shown.
2016		0.1531	3.4145	2.9177	85.4512
2017		0.1531	3.2614	2.8777	88.2363
2018		0.1531	3.1083	2.8361	91.2444
2019		0.1531	2.9551	2.7928	94.5083
2020 and later years		0.1531	2.8020	2.7478	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 88.1508 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2016 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 (%)
2006	38.3328	38.3328	61.6672	58.1879	94.3581
2007	58.8485	20.5156	41.1515	39.5839	96.1907
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 2006 accident year and that are outstanding at the end of the tax year shown.
2008 and later years		20.5758	20.5758	20.1781	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2008 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 (%)
2006	4.0723	4.0723	95.9277	90.7812	94.6350
2007	40.7639	36.6916	59.2361	56.9796	96.1907
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 2006 accident year and that are outstanding at the end of the tax year shown.
2008 and later years		29.6180	29.6180	29.0457	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2008 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 (%)
2006	40.9985	40.9985	59.0015	53.7593	91.1153
2007	65.8439	24.8454	34.1561	30.5639	89.4832
2008	77.5023	11.6583	22.4977	19.8923	88.4193
2009	84.6221	7.1198	15.3779	13.4239	87.2935
2010	90.2455	5.6234	9.7545	8.2239	84.3094
2011	92.2780	2.0325	7.7220	6.4788	83.8997
2012	94.3974	2.1195	5.6026	4.5754	81.6658
2013	95.2526	0.8552	4.7474	3.8854	81.8439
2014	96.2792	1.0266	3.7208	2.9933	80.4470
2015	96.4323	0.1531	3.5677	2.9562	82.8624
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 2006 accident year and that are outstanding at the end of the tax year shown.
2016		0.1531	3.4145	2.9177	85.4512
2017		0.1531	3.2614	2.8777	88.2363
2018		0.1531	3.1083	2.8361	91.2444
2019		0.1531	2.9551	2.7928	94.5083
2020 and later years		0.1531	2.8020	2.7478	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 88.1508 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2016 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 (%)
2006	7.3447	7.3447	92.6553	83.4596	90.0754
2007	29.0191	21.6744	70.9809	64.6798	91.1228
2008	53.3108	24.2917	46.6892	42.4836	90.9925
2009	69.1517	15.8409	30.8483	28.0215	90.8363
2010	82.0981	12.9464	17.9019	15.9352	89.0139
2011	86.3995	4.3014	13.6005	12.1832	89.5793
2012	89.7111	3.3116	10.2889	9.2913	90.3038
2013	92.4688	2.7577	7.5312	6.8490	90.9420
2014	94.5163	2.0475	5.4837	5.0337	91.7950
2015	95.7635	1.2471	4.2365	3.9624	93.5285
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 2006 accident year and that are outstanding at the end of the tax year shown.
2016		1.2471	2.9894	2.8483	95.2819
2017		1.2471	1.7422	1.6900	97.0008
2018 and later years		1.2471	0.4951	0.4855	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 95.9709 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2016 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 (%)
2006	0.8316	0.8316	99.1684	84.5630	85.2721
2007	7.4573	6.6257	92.5427	81.1723	87.7134
2008	23.5575	16.1002	76.4425	67.9856	88.9369
2009	41.0062	17.4487	58.9938	52.8989	89.6685
2010	55.5832	14.5770	44.4168	40.1400	90.3712
2011	68.9413	13.3581	31.0587	28.1163	90.5261
2012	78.2095	9.2682	21.7905	19.7844	90.7937
2013	82.8727	4.6632	17.1273	15.8167	92.3480
2014	86.3178	3.4451	13.6822	12.9332	94.5260
2015	91.0834	4.7656	8.9166	8.5884	96.3200
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 2006 accident year and that are outstanding at the end of the tax year shown.
2016 and later years		4.7656	4.1510	4.0708	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2016 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 (%)
2006	79.7790	79.7790	20.2210	19.5491	96.6770
2007	94.9417	15.1627	5.0583	4.8656	96.1907
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 2006 accident year and that are outstanding at the end of the tax year shown.
2008 and later years		2.5292	2.5292	2.4803	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2008 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 (%)
2006	59.7445	59.7445	40.2555	37.4341	92.9914
2007	81.0347	21.2902	18.9653	17.2142	90.7672
2008	87.3325	6.2978	12.6675	11.4775	90.6059
2009	91.0659	3.7334	8.9341	8.1273	90.9698
2010	95.1781	4.1122	4.8219	4.2575	88.2964
2011	95.7605	0.5824	4.2395	3.8331	90.4149
2012	97.0539	1.2933	2.9461	2.6668	90.5202
2013	97.6441	0.5903	2.3559	2.1711	92.1567
2014	98.7037	1.0596	1.2963	1.1770	90.8007
2015	98.6217	-0.0821	1.3783	1.3076	94.8644
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 2006 accident year and that are outstanding at the end of the tax year shown.
2016		0.5226	0.8558	0.8267	96.6061
2017 and later years		0.5226	0.3332	0.3267	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 96.9550 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2016 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 (%)
2006	69.1729	69.1729	30.8271	29.7431	96.4837
2007	91.2168	22.0439	8.7832	8.4487	96.1907
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 2006 accident year and that are outstanding at the end of the tax year shown.
2008 and later years		4.3916	4.3916	4.3068	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2008 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 (%)
2006	14.9618	14.9618	85.0382	75.3352	88.5898
2007	36.2113	21.2494	63.7887	56.6653	88.8328
2008	54.2876	18.0763	45.7124	40.4881	88.5713
2009	64.2163	9.9288	35.7837	31.9751	89.3567
2010	73.2732	9.0569	26.7268	24.0123	89.8438
2011	80.5748	7.3016	19.4252	17.5225	90.2054
2012	87.6200	7.0452	12.3800	11.0359	89.1433
2013	89.9155	2.2955	10.0845	9.1344	90.5790
2014	93.3946	3.4791	6.6054	5.9503	90.0827
2015	94.6170	1.2223	5.3830	4.9407	91.7827
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 2006 accident year and that are outstanding at the end of the tax year shown.
2016		1.2223	4.1607	3.8909	93.5158
2017		1.2223	2.9383	2.7993	95.2689
2018		1.2223	1.7160	1.6643	96.9877
2019 and later years		1.2223	0.4936	0.4841	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 94.6440 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2016 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 (%)
2006	19.1133	19.1133	80.8867	69.7012	86.1714
2007	36.4434	17.3301	63.5566	54.8037	86.2281
2008	52.1648	15.7215	47.8352	40.9536	85.6140
2009	63.2383	11.0734	36.7617	31.2919	85.1209
2010	72.0780	8.8397	27.9220	23.5235	84.2469
2011	75.9021	3.8241	24.0979	20.5602	85.3195
2012	82.9305	7.0284	17.0695	14.2116	83.2573
2013	85.1441	2.2136	14.8559	12.5200	84.2763
2014	89.3006	4.1565	10.6994	8.7799	82.0597
2015	89.9898	0.6892	10.0102	8.4266	84.1796
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 2006 accident year and that are outstanding at the end of the tax year shown.
2016		0.6892	9.3210	8.0591	86.4622
2017		0.6892	8.6318	7.6771	88.9398
2018		0.6892	7.9426	7.2798	91.6560
2019		0.6892	7.2533	6.8668	94.6705
2020 and later years		0.6892	6.5641	6.4373	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 90.4497 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2016 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 (%)
2006	43.1926	43.1926	56.8074	53.5261	94.2237
2007	72.2008	29.0082	27.7992	26.0766	93.8032
2008	84.5632	12.3625	15.4368	14.5083	93.9856
2009	91.9316	7.3684	8.0684	7.5722	93.8501
2010	95.8729	3.9413	4.1271	3.8546	93.3975
2011	97.7804	1.9075	2.2196	2.0629	92.9415
2012	98.7957	1.0153	1.2043	1.1098	92.1473
2013	99.2491	0.4535	0.7509	0.6915	92.0971
2014	99.5195	0.2703	0.4805	0.4434	92.2703
2015	99.6353	0.1159	0.3647	0.3429	94.0275
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 2006 accident year and that are outstanding at the end of the tax year shown.
2016		0.1159	0.2488	0.2384	95.8137
2017		0.1159	0.1330	0.1297	97.5849
2018 and later years		0.1159	0.0171	0.0168	98.0675
Taxpayers that use the composite method of Notice 88-100 should use 96.3943 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2016 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 (%)
2006	6.5804	6.5804	93.4196	80.2960	85.9520
2007	26.7183	20.1379	73.2817	62.9570	85.9110
2008	43.1834	16.4652	56.8166	48.6731	85.6671
2009	43.9209	0.7375	56.0791	49.8583	88.9071
2010	54.3806	10.4597	45.6194	41.1768	90.2617
2011	78.3630	23.9824	21.6370	18.3607	84.8579
2012	82.8643	4.5013	17.1357	14.5014	84.6271
2013	68.2184	-14.6459	31.7816	30.0132	94.4355
2014	79.1582	10.9399	20.8418	20.0522	96.2118
2015	89.6963	10.5381	10.3037	10.1045	98.0675
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 2006 accident year and that are outstanding at the end of the tax year shown.
2016 and later years					98.0675
Taxpayers that use the composite method of Notice 88-100 should use 98.0675 percent to discount unpaid losses incurred in this line of business in 2006 and prior years and that are outstanding at the end of the 2016 taxable year.

Products Liability — Occurrence