Key Discount Factors for 2023 Unpaid Losses in Insurance Companies 

On December 7, 2023, the IRS issued the discount factors used to discount unpaid losses and loss adjustment expenses under section 846 and estimated salvage recoverables under section 832 for 2023 accident years. The discount factors can be found in Rev. Proc. 2023-41. Rev. Proc. 2023-41 also summarizes previously issued discount factors for accident years beginning before 2023.

Taxable income for insurance companies is prescribed under 26 U.S. Code Subchapter L. Section 832(b)(3) of such defines “underwriting income” as premiums earned on insurance contracts less losses incurred and expenses incurred. Section 832(b) further states that in calculating the deduction for losses incurred, the change in unpaid losses component of the deduction is subject to discounting of non-life loss reserves as further prescribed in section 846.  The discount is applied by accident year and line of business. The underlying factors are based on the current applicable interest rate and the applicable loss payment pattern, i.e. short-tail lines of business and long-tail lines of business.

Discounting of non-life loss reserves applies to both life and non-life insurance companies which fall under taxation of Subchapter L.

Understanding and applying the guidelines outlined in Rev. Proc. 2023-41 is crucial for insurance companies to manage their 2023 accident year finances effectively. If you have any questions or require further clarification on the impact these changes might have on your business, contact your CRI advisor. Our team is here to provide expert advice and tailored solutions to ensure your company navigates these updates with confidence and precision.