In Internal Revenue Bulletin 2012-49, the Internal Revenue Service published Revenue Procedure 2012-44 (loss payment patterns and discount factors) and Revenue Procedure 2012-45 (salvage discount factors) for 2012.
Revenue Procedure 2012-44
Rev. Proc. 2012-44, under Internal Revenue Code (IRC) Section 846, establishes the loss payment patterns and discount factors to be used for the 2012 accident year. Insurance companies should use these factors for computing discounted unpaid losses for each property and casualty line of business.
Revenue Procedure 2012-45
Rev. Proc. 2012-45, under IRC Section 832, establishes the salvage discount factors to be used for the 2012 accident year. These factors should be used for computing discounted estimated salvage recoverable for each property and casualty line of business.
2012 determination year
It is important to note that 2012 is a "determination year" in which an insurance company can elect to use its own company experience discount factors, which are based on the company’s historical payment patterns, instead of the prescribed Treasury discount factors noted in the Revenue Procedures above. This election is available every five years. If an insurance company elects to use its own company experience discount factors, all eligible lines of business by accident year must be discounted using this method for the 2012 accident year and the next four accident years. The election cannot be changed or revoked and is made on Schedule I of Form 1120-PC, Question #7. The election does not apply to salvage discount factors.
Read the full Internal Revenue Bulletin 2012-49 >