NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2008
1 Accounting Policies (f) Indemnity provision
(a) Basis of preparation of financial statements Provision is made for the estimated outstanding cost of
The group financial statements have been prepared on the
settlement and related claimants’ costs for indemnity cases
going concern basis under the historical cost convention
from all reported incidents notified as at the balance sheet
and in accordance with the Companies Act 1985 and
date up to the amount of group and company net book
applicable accounting standards in the UK. As permitted by
assets as the group and company liabilities cannot exceed
the Companies Act 1985, the financial statements formats
their assets (see note 13(a)). The gross provision, before
have been adapted, as necessary, to give a true and fair
restriction, is calculated on the advice of the consulting
view of the state of affairs of the company and group.
actuaries and has been discounted to allow for future
investment returns in accordance with FRS12.
(b) Basis of consolidation The estimated value of this provision is stated before
The group income and expenditure account and balance
estimated recoveries from insurers, which are disclosed
sheet consolidate the financial statements of the company
separately as debtors and calculated by the consulting
and its subsidiary undertakings for the year ended 31
actuaries. The provision will be paid over an extended
December 2008, using acquisition accounting. No income
period and subject to agreement by all parties. It is not
and expenditure account is presented for The Medical
practical to estimate the periods in which the indemnity
Defence Union Limited as permitted by section 230 of the
provision might be paid. The movement on the provision
Companies Act 1985.
separately identifies the unwinding of the discount which is
disclosed as a finance cost in the income and expenditure
account. The principal financial assumption used in the
(c) Members’ subscriptions
calculation of the finance cost is that the rate used to
Members’ subscriptions consist of subscriptions for unwind the discount is 2.625% (2007: 3.375%) per annum.
members’ services and insurance premiums received from
members for payment to Scor Insurance (UK) Limited (Scor)
No provision is made for claims that may arise from
and International Insurance Company of Hannover Limited
incidents occurring before the balance sheet date but not
(Hannover) in the UK and Zurich Insurance Ireland Ltd in
reported to the group at that date (IBNR) or for defendant
Ireland. These are accounted for on the basis of amounts
legal costs, nor for claims where The Medical Defence
due and received by the group before the balance sheet
Union Ltd has not exercised its discretion to assist. Nearly all
date, without apportionment.
paying members now have an insurance policy and, for
those who do, such IBNR claims are covered under the
Subscriptions retained by the company and group, net of terms of their policy.
insurance premiums paid, referred to in note (d) below,
represent additional income for the funding of indemnity
The principal financial assumptions used in the actuaries’
payments and the provision of advisory services to members.
calculation of the gross indemnity provision for the
It is not practical to allocate a separate fair value to these
company and the group are that claims inflation will be
two components.
7.5% per annum (2007: 8.5% per annum) over the period
of settlement and that a net discount rate of 2.1% per
annum (2007: 3.1% per annum) is used to discount the
(d) Insurance premiums
claims payments to the balance sheet date.
As explained in note (c) above premiums paid to Scor,
Hannover and Zurich Insurance Ireland Ltd are charged to
(g) Tangible fixed assets and depreciation
the income and expenditure account. The insurance
arrangements in place provide for an adjustment in
The cost of tangible fixed assets is written off evenly over
premiums if the actual claims experience is better than
their estimated useful economic lives. Reviews are made
envisaged at the time the premium is initially established.
periodically of the estimated remaining lives of individual
Such amounts are brought into the accounts as debtors
assets, taking account of commercial and technological
(premium element adjustment) when they can be reliably
obsolescence as well as normal wear and tear. The principal
measured and are re-assessed each year.
rates of depreciation per annum, on a straight line basis,
are as follows:
(e) Indemnity, legal, reinsurance and insurance costs
• Leasehold property improvements:
Expenditure on indemnity payments, including the
the shorter of the length of the lease and 10 years
movement on the indemnity provision between the
• Furniture, office and computer equipment: 3 - 5 years
beginning and end of the year, and on legal charges covers
the aggregate of all indemnity payments, and legal services
• Motor vehicles: 4 years
provided for members, together with insurance premiums,
including those collected on behalf of and paid over to Scor (h) Investments
and Hannover in the UK and Zurich Insurance Ireland Ltd in
Investments are included at cost less any necessary provision
Ireland as and when received from members. These costs
for impairment.
include plaintiffs’ costs, payments on account, legal costs,
representation at service committee appeals, at hospital
enquiries and at the General Medical and Dental Councils,
and legal assistance to members.
50
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