26 U.S. Code § 846 - Discounted unpaid losses defined
In no event shall the amount of the discounted unpaid losses with respect to any line of business attributable to any accident year exceed the aggregate amount of unpaid losses with respect to such line of business for such accident year included on the annual statement filed by the taxpayer for the year ending with or within the taxable year.
Except as otherwise provided in this subsection, the term “undiscounted unpaid losses” means the unpaid losses shown in the annual statement filed by the taxpayer for the year ending with or within the taxable year of the taxpayer.
For each determination year, the Secretary shall determine a loss payment pattern for each line of business by reference to the historical loss payment pattern applicable to such line of business. Any loss payment pattern determined by the Secretary shall apply to the accident year ending with the determination year and to each of the 4 succeeding accident years.
In the case of any line of business not described in subparagraph (A)(ii), losses paid after the 1st year following the accident year shall be treated as paid equally in the 2nd and 3rd year following the accident year.
The period taken into account under subparagraph (A)(ii) shall be extended to the extent required under subclause (II).
The amount of losses which would have been treated as paid in the 10th year after the accident year shall be treated as paid in such 10th year and each subsequent year in an amount equal to the amount of the average of the losses treated as paid in the 7th, 8th, and 9th years after the accident year (or, if lesser, the portion of the unpaid losses not theretofore taken into account). To the extent such unpaid losses have not been treated as paid before the 24th year after the accident year, they shall be treated as paid in such 24th year.
For purposes of this section, the term “determination year” means calendar year 1987 and each 5th calendar year thereafter.
The term “accident year” means the calendar year in which the incident occurs which gives rise to the related unpaid loss.
The term “line of business” means a category for the reporting of loss payment patterns determined on the basis of the annual statement for fire and casualty insurance companies for the calendar year ending with or within the taxable year, except that the multiple peril lines shall be treated as a single line of business.
The term “multiple peril lines” means the lines of business relating to farmowners multiple peril, homeowners multiple peril, commercial multiple peril, ocean marine, aircraft (all perils) and boiler and machinery.
2017—Subsec. (c)(2). Pub. L. 115–97, § 13523(a), amended par. (2) generally. Prior to amendment, text read as follows:
“(A) In general.—The annual rate determined by the Secretary under this paragraph for any calendar year shall be a rate equal to the average of the applicable Federal mid-term rates (as defined in section 1274(d) but based on annual compounding) effective as of the beginning of each of the calendar months in the test period.
“(B) Test period.—For purposes of subparagraph (A), the test period is the most recent 60-calendar-month period ending before the beginning of the calendar year for which the determination is made; except that there shall be excluded from the test period any month beginning before August 1, 1986.”
Subsec. (d)(3)(B) to (G). Pub. L. 115–97, § 13523(b), added subpar. (B) and struck out former subpars. (B) to (G) which related to treatment of certain losses, special rule for certain long-tail lines, long-tail line of business, special rule for international and reinsurance lines of business, adjustments if loss experience information available for longer periods, and special rule for 9th year if negative or zero, respectively.
Subsecs. (e), (f). Pub. L. 115–97, § 13523(c), redesignated subsecs. (f) and (g) as (e) and (f), respectively, and struck out former subsec. (e) which related to election to use company’s historical payment pattern.
Subsec. (f)(6)(A). Pub. L. 115–97, § 13517(b)(3), substituted “except that the limitation of subsection (a)(3) shall apply, and” for “except that—
“(i) the prevailing State assumed interest rate shall be the rate in effect for the year in which the loss occurred rather than the year in which the contract was issued, and
“(ii) the limitation of subsection (a)(3) shall apply in lieu of the limitation of the last sentence of section 807(d)(1), and”.
Subsec. (g). Pub. L. 115–97, § 13523(c), redesignated subsec. (g) as (f).
1990—Subsec. (g). Pub. L. 101–508 inserted “and” at end of par. (1), redesignated par. (3) as (2), and struck out former par. (2) which required regulations providing proper treatment of salvage and reinsurance recoverable attributable to unpaid losses.
1988—Subsec. (f)(6)(B). Pub. L. 100–647, § 1010(e)(1), substituted “paid in the middle of the year” for “paid during the year”.
Subsec. (g)(3). Pub. L. 100–647, § 1010(e)(2), added par. (3).
Amendment by section 13517(b)(3) of Pub. L. 115–97 applicable to taxable years beginning after Dec. 31, 2017, with transition rule and transition relief, see section 13517(c) of Pub. L. 115–97, set out as a note under section 807 of this title.
Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.
Written determinations for this section
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