Final Regs on Discounting Cancellable A&H (and Property-Casualty) Claim Reserves Under § 846

On June 17, 2019, the Internal Revenue Service (IRS) published Final Regulations implementing changes to loss reserve discounting under section 846 of the Internal Revenue Code (Code) made by the Tax Cuts and Jobs Act (TCJA). Earlier articles in this newsletter have looked at issues raised by this TCJA provision a few months after enactment and shortly after proposed regulations were issued. This note addresses changes made in the Final Regulations, particularly modification of rules for determining the interest rate used for discounting, in response to comments from taxpayers on the proposed regulations.

The IRS has recently followed up with a revenue procedure (Rev. Proc. 2019-315) providing revised discount factors under section 846 for the 2018 accident year and prior accident years, as well as factors for the 2019 accident year. At the same time, the IRS has set automatic consent procedures (Rev. Proc. 2019-306 ) for changes in accounting methods to comply with the new law. While discounting is of great significance for unpaid losses of property-casualty (P-C) insurance companies, it also applies to claim liabilities on cancellable accident and health (A&H) insurance (other than disability income) written by life insurance companies.