SECTION 26. DISCOUNTED UNPAID

LOSSES (§ 846)

.01 Composite method for discounting unpaid losses .

(1) Description of change . Section 846 defines “discounted unpaid losses” for purposes of computing the insurance company taxable income of certain insurance companies. Notice 88–100, 1988–2 C.B.

439, section V, sets forth a composite method for computing unpaid losses with respect to accident years not separately stated on the NAIC annual statement. Rev. Proc. 2002–74, 2002–2 C.B. 980, section 3.01, clarifies that the composite method of Notice 88–100, section V, is permitted, but not required; section 3.02 sets forth an alternative method for those taxpayers that do not use the composite method of section 3.01. An insurance company using a method provided in section 3.01 or 3.02 of Rev. Proc. 2002–74 to compute discounted unpaid losses, must use the same method to compute discounted estimated salvage recoverable. An insurance company that currently uses a permissible method of accounting for discounted unpaid losses may change its method of accounting to or from the composite method of Notice 88–100, section V, without the consent of the Commissioner. This change applies to insurance companies that are required to discount unpaid losses under § 846. See Rev. Proc. 2002–74. (2) Designated automatic accounting method change number . The designated automatic accounting method change number for a change under this section 26.01 is “68.” (3) Contact information . For further information regarding a change under this section, contact David Remus at (202) 317-6995 (not a toll-free number). .02 Reserved .