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12 annual report & accounts 2012

The Medical and Dental Defence Union of Scotland Protecting you since 1902


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Contents From the Chairman

04

From the CEO

04

Review of MDDUS activities

05

Finance director’s report

12

Directors’ report

14

Audit Committee report

17

Independent auditors’ report

18

Financial statements for 2012

19

MDDUS Board and honorary fellows

33

Management and professional staff

34

External professional advisers

35

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From the Chairman Following the AGM in 2012, the Board elected me as chairman, and it gives me great pleasure to present my first annual report. I am only too conscious of the difficult task of following Alistair Beattie, who served an unprecedented 31 years on the Board of MDDUS, 17 of these as treasurer and 10 as chairman. Under Alistair’s stewardship, the Union has expanded both in terms of membership and financial security and MDDUS is now a significant presence in the UK medical and dental defence marketplace. I was delighted to present Alistair with an honorary fellowship of the Union at the June Board meeting.

Dr Brendan Sweeney Chairman 16 August 2013

During the past year David Wray retired from the Board and this year both George Bennet and Eric Battison will retire. I thank them for many years of valued contribution to Board discussions. We co-opted Dame Elish Angiolini to the Board as our third lay non-executive director. Dame Elish is a former Lord Advocate and Solicitor General of Scotland, and is currently principal of St Hugh’s College, University of Oxford. During 2012 we continued to strengthen our financial position and it is evident from the annual accounts and the report of the finance director that our reserves are comfortably adequate to meet known and anticipated liabilities. The sole raison d’être of the Union is to provide as efficient a service as possible to our members, and to this end we have continued the upgrading of our IT system and have introduced a speedier system of access to advice for members with a significant reduction in call-backs. The growth of our membership in England continues, and we await with interest the independence white paper in November in order to begin to assess the impact of possible Scottish independence following the referendum in 2014. Over half our active membership now work outside Scotland. My responsibilities as chairman are greatly eased by excellent working relationships with the chief executive and finance director, and I am happy to acknowledge my indebtedness to them and indeed to the entire staff of the Union who ensure the smooth running of the organisation and the maintenance of an excellent standard of service to members.

From the CEO I attended a talk some time ago by the founder of a well-known UK car exhaust firm. He was speaking about the challenges of managing a business with branches in every major town in the country but it was one of his opening comments that resonated most with me. He started by saying that no one wakes up in the morning and decides they will change their car exhaust. It seems such an obvious observation to make. Something has happened that caused the customer to call one of his branches and so they must be able to respond immediately and positively to that need. I feel it is almost exactly the same for us at MDDUS. I expect very few members think about MDDUS too much on a day-to-day basis and none decide to phone just for a chat! Something has happened that has caused them to be in touch and what they need is access to someone who will be able to help them there and then. Professor Gordon C A Dickson Chief Executive Officer and Secretary 16 August 2013

That is our role at MDDUS and as you will see from the pages of this report we respond to an evergrowing number of calls from members every day of the year. No matter what has prompted the call to us, we aim to offer a professional and empathetic ear. Where necessary we of course do much more by way of providing assistance and in many cases indemnity. We were delighted last year when we received the results from an anonymous poll conducted on our behalf by one of the UK’s largest polling organisations, in which our members had ranked the service they receive from us higher than the score given by members of other defence bodies. Nothing is more important to us than being there to assist when the need arises. You will see some indication of our activity over the year in the pages of this report and meet some of the staff who provide that service to members. I pay tribute once again to them. Our members are well served by a loyal and dedicated group of staff who bring great skill to the task of assisting our members in so many ways. Finally, this is your Union and so I thank you for your continuing membership and look forward to continuing to provide the service you expect and deserve.

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MDDUS Annual Report and Accounts 2012


Review of MDDUS activities Our total membership in the year 2012 grew 8 per cent and as of 1 July 2013 stood at 35,182 Membership sees continued growth The year 2012 saw another milestone for MDDUS with membership experiencing the highest yearly rate of growth in a decade. Our total membership grew 8 per cent in 2012 and as of 1 July 2013 stood at 35,182. Growth in total active membership was even more impressive at 8.8 per cent, compared with 5.8 per cent growth in 2011. MDDUS maintains its preeminent market share among Scottish doctors and dentists. Growth has come mainly outside of Scotland and most particularly among GPs in England. Last year, 2,206 English GPs joined the Union. In 2006 around 9 per cent of English GPs belonged to MDDUS and today that figure is over 17 per cent. Looking to continued growth among GPs, MDDUS was recently pleased to win a contract for the provision of indemnity to GP specialist trainees (GPSTs) at Health Education East of England. MDDUS also provides medical indemnity to GPSTs at NHS North Lancashire and at the St Helens & Knowsley Teaching Hospitals NHS Trust.

35000

MDDUS also saw improved growth in 2012 among general dental practitioners (GDPs) with a 3.3 per cent rise in membership. Growth among private physicians and hospital doctors was an impressive 6.8 per cent. There are a number of reasons why our membership keeps growing. A recently commissioned national market research survey identified two key factors influencing doctors or dentists in their choice of defence body – price and immediate access to professional advice. MDDUS has focused on getting both of these right, maintaining a competitive pricing structure and providing members with a personalised service when they need to contact us.

Total membership

30000 25000 20000 15000 10000 5000

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03 20

20 02

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Review of MDDUS activities

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Increased litigation and “non-claim” cases MDDUS has over the last few years seen evidence of a growing compensation culture in the UK, which is also in line with reports from other defence bodies and NHS litigation authorities. This may be related to the harsh economic climate of recent years but is being manifested in increasing claim rates and consequent legal costs. In 2012 MDDUS saw a 35 per cent rise in claims intimated over the year compared to 2011. This included a 42 per cent rise in GP claims. Claims intimated against GDPs have increased by 53 per cent while claims against hospital doctors fell slightly. Some of this overall increase can be attributed to our growing membership but the trend in increased litigation was also reflected in a small rise in the frequency of claims. The trend also shows a regional dimension. Last year we reported on a so-called “Scottish effect” in litigation with rates much lower north of the border. This is borne out again in 2012 with the rate of claims significantly lower among Scottish members. MDDUS is not alone in our experience of rising claims. The cost of medical negligence payments by the NHS in Wales has almost doubled over the past three years and the NHS Litigation Authority in England has claimed that costs increased 45.9 per cent in the year 2011-12.

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MDDUS Annual Report and Accounts 2012

Rates for “non-claims” cases involving referral to the GMC or GDC have also increased. In 2012 MDDUS saw a 41 per cent increase in the number of GMC cases handled on behalf of members and the number of GDC cases increased by 67 per cent. This rise in regulatory cases is consistent with figures reported by both the GMC and GDC and reflects a number of factors including a greater proportion of registrants now being reported to regulators by employers or colleagues. The total external legal costs for future non-claims (including GMC/GDC, fatal accident inquires, coroner’s inquests and disciplinary cases) after actuarial adjustment almost doubled in the year 2012. MDDUS is proud of its success rate in defending members. Over 75 per cent of medical claims and 70 per cent of dental claims intimated to our members close with no payment being made. Among “nonclaims” cases, 96.5 per cent of GMC cases and 86.8 per cent of GDC cases in the year 2011 concluded with no sanctions imposed against MDDUS members.


meet… Dr Susan Gibson-Smith, medical adviser Susan worked as a GP for 13 years before joining MDDUS in 2009. She qualified from Glasgow University in 1992 and returned there to complete a postgraduate MPhil in Law and Ethics in Medicine in 2004. She has experience in GP training, undergraduate and postgraduate medical teaching as well as working as a GP appraiser from 2004 to 2011. Her role at MDDUS is busy and varied, providing members with advice and support with medico-legal matters, negligence claims, complaints and GMC referrals.

Advisory and legal services Last year the MDDUS medical advisory team handled a record 13,664 member contacts (telephone, email, letters) – a 5.2 per cent increase on 2011 and the continuation of a seven-year rise. Dental advisory contacts also increased in 2012.

“I really enjoy the great variety within the job. You can be on the phones giving advice to members, writing articles for MDDUS publications or meeting with doctors to assist with a coroner’s inquest or fatal accident inquiry.” Wendy Tennyson, Secretary to the head of dental division

Our employment law team saw an 8.5 per cent increase in advice requests in 2012, 20 per cent of these dental and 80 per cent medical. The three most popular topics of advice were contractual issues, absence and disciplinary matters.

The dental division has changed considerably since Wendy joined MDDUS in 1997. Gone are the paper files and dictation cassettes she once used, as advances in technology mean all information is now stored and managed electronically. The number of advisers and their caseloads has also grown as membership has increased over the years. As secretary to the head of dental division, this means Wendy’s role is a busy one. She responds to calls and written correspondence from members, assists with the allocation of new cases, and scans and uploads case files to the MDDUS system.

In 2012 MDDUS recruited five new medical advisers as part of a programme to expand and streamline our medical advisory division. The Union has also expanded our in-house legal teams both in London and Glasgow to meet the rising civil and regulatory caseload.

“It’s a very busy job and can get quite hectic at times. But we all work as part of a team and it’s nice to help members and provide a good service.”

Various explanations can be advanced for the increase in calls, including the steady growth in membership throughout the UK and an increasing number of patient complaints. There is also now a greater awareness among members that it is best to seek advice early rather than risk problems later escalating into formal complaints or legal claims. For medical cases, the most frequent type of advice related to patient complaints (21 per cent of calls), confidentiality, claims, difficult patients and records. For dental cases, it was advice concerning difficult patients, complaints, dental records, problems with colleagues and treatment planning.

Review of MDDUS activities

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Influence in legal and regulatory matters MDDUS has continued to make its voice heard on behalf of members in a wide range of forums and across a large number of consultations during the last year. This is consistent with our strategy of ensuring that our presence and influence is maintained in all relevant areas of healthcare. Notable amongst these has been: • M ajor submissions on the reforms of the civil justice system in England and the “Jackson Reforms” on controlling legal costs.

• Submissions on direct access to dental health care professionals. • C ontinued reform of the GMC’s procedures and the developing role of the Medical Practitioners Tribunal Service (MPTS). • E ngagement with the Department of Health on the scope of NHS indemnity and the implementation of adequate indemnity arrangements. • Major consultation on no-fault compensation in Scotland.

• E nsuring the acceptance of discretionary medical indemnity as an appropriate form of cover to ensure patients harmed due to clinical negligence can seek redress through compensation.

• M ajor consultation on reform of the damages discount rate and the use of periodical payments in England and Wales.

• Submissions on the future of the cosmetic surgery industry.

The Union is consistently making its views known on a range of other matters in order to ensure that members’ interests are properly safeguarded.

• M ajor reforms to the GDC fi tness to practise procedures and CPD requirements.

Promotion and recruitment The marketing department at MDDUS encompasses a wide range of activities including new member recruitment, promotional activities, publications and press relations. These are all key to the Union’s aspiration to become an equal national player in the medical and dental defence market in terms of influence, presence and size. In addition to regular visits to hospitals and medical and dental practices, marketing staff attend numerous conferences and exhibitions across the UK. In October of 2012 MDDUS was the principal sponsor of the RCGP annual national conference in Glasgow. We also sponsored the 2012 UK Conference of Postgraduate Educational Advisers in General Practice in Newcastle. More recently in June of 2013 MDDUS sponsored an RCGP Scotland ethical conference on compassion in primary healthcare in Edinburgh. Other medical conferences and exhibitions attended include the 2012 NAPC Commissioning Conference in London and the 2012 Management in Practice Event held in Manchester.

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MDDUS Annual Report and Accounts 2012


meet… Rukmanie Athwal, case assistant

MDDUS also exhibited at the 2012 British Dental Trade Association Showcase in London and the 2013 Dentistry Show in Birmingham, as well as FGDP study days throughout the UK in 2013. One key event in the marketing calendar in May of 2013 was the BMJ Awards in London at which MDDUS was pleased once again to act as principal sponsor. The Union’s chief executive Professor Gordon Dickson welcomed 644 guests, 63 shortlisted teams and 15 winning teams from all over the UK. Among the attendees were some of the most influential figures in UK healthcare. Thanks to the efforts of our press officer in 2012, MDDUS featured regularly in medical and dental publications both online and in print, including Pulse, GP, the BMJ, Dentistry and Practice Management, as well as in national newspapers including the Telegraph, Daily Mail, Herald Scotland and The Guardian. MDDUS is active on Twitter and Facebook with links to our articles and press releases, and MDDUS resources are also frequently encountered FYi in Google and other online search engines. ISSUE 10

ISS

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MDDUS publications staff continue to produce a range of quality magazines aimed at various membership segments, along with two monthly e-newsletters with a growing readership as evidenced by “click rates”. This year we revamped the Resource Library page on mddus.com to allow easier browsing of past articles and other resources – this is in addition to our Publications page from which all our printed material is available to read online.

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HAVE YOU LET SLOPPY HABITS CREEP INTO THE WAY YOU PRACTISE?

ALSO INSIDE

08 A CAREER IN

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10 REVALIDATION HOW IT ALL BEGAN

ALSO INSIDE AN MDDUS PUBLICATION

06 VOLUNTEERING ADVENTURE IN KENYA

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10 CLINICAL RISK PERIODONTICS

AN MDDUS PUBLICATION

ISSUE 8

Dragon at The gATe

a viSit froM The CqC

HanDle wITh CAre

Can the myth of the “surly” and unhelpful receptionist finally be slayed?

What to expect when you’re inspected by the Care Quality Commission

Is your results handling system fail-safe or a disaster waiting to happen?

ISSUE 06

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05 MRCGP EXAM TACKLING WPBA

08 EMERGENCY CARE

A SPECIAL INTEREST CAREER

The MDDUS legal team in London has grown considerably in the past year with Rukmanie, one of our newest recruits, joining in November 2012. After completing a law degree at the University of Nottingham in 2009, she worked as a claims handler for an insurance firm, dealing with public liability and employer’s liability claims. Her next role was as a paralegal for a firm specialising in claimant clinical negligence law. Now, Rukmanie helps the MDDUS legal team manage case work – reading reports, drafting documents such as letters of response or instructions to experts, as well as other important day-to-day case management. “It can be daunting for members to receive a letter of claim, so being able to explain to them what the legal jargon means and support them at a trying time in their lives is very rewarding.” Richard Hendry, press relations officer Raising the profile of MDDUS in the media is the main aim of our press relations officer. Richard has worked in the newspaper industry as a reporter and sub-editor for more than 10 years and brought the benefit of his experience to the Union in 2011. His role involves working closely with our advisory teams to produce press releases and articles on a wide range of topics. He must also be ready to respond to inquiries from the medical and dental press as well as from the national media. He established an MDDUS presence on social media sites Facebook and Twitter, providing regular news and events updates. “It’s important that MDDUS has a strong presence in the media and I enjoy working with our advisors and UK journalists to achieve that. Securing good media coverage is a challenge but the successes are very rewarding.”

brancH gp SUrgery at Heaton park SainSbUry’S

AN MDDUS PUBLICATION

Review of MDDUS activities

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Membership services In 2012 Membership Services dealt with over 27,940 telephone enquiries from existing and prospective members, and in the first quarter of 2013 alone we handled 6,652 calls. In 2012 we received over 5,000 email enquiries (1,335 in first quarter of 2013) of which just under 90 per cent were responded to within two working days. Membership Services continues to offer members advice on their correct level of cover, in line with their changing circumstances, drawing on our combined experience of over 100 years of service among department staff. We make every effort to ensure that emails and letters are replied to within two working days of receipt and telephone enquiries are answered promptly, ensuring our members continue to receive excellent service levels, as we aspire to offer a service that is second to none.

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MDDUS Annual Report and Accounts 2012

In February 2013 we launched an updated and more user-friendly version of our online application form and in the first five months of use over 1,250 forms were processed.

Training and consultancy Over the last year, MDDUS Training and Consultancy has continued to develop and deliver a variety of risk management topics across the UK to conferences and groups of doctors, dentists and practice managers. Two online risk modules are now available on our website. ‘Leading through uncertainty’, our five-day leadership and risk programme (accredited by the Royal College of Physicians), has been more popular than ever. It has received overwhelmingly positive feedback from participants and continues to attract senior GPs and hospital doctors from across the UK.


meet… Other developments This year the Board of MDDUS was pleased to announce the appointment of Dame Elish Angiolini QC as a non-executive director. The former Lord Advocate and Solicitor General of Scotland brings considerable knowledge and experience to MDDUS and will play an important role in strategic development in the organisation. Following the 2012 purchase of the building housing our London offices at 1 Pemberton Row, the Union has been developing plans to expand the space there by adding two additional floors. This will accommodate our growing London staff and provide additional room for expansion. Meanwhile at the MDDUS Glasgow headquarters, staff have settled into the extra space provided by our expansion into 167 Bath Street. The B-listed Georgian townhouse has provided much needed additional meeting space and offices for our Glasgow legal team and other support staff.

Leslie Hamilton, membership services assistant With an impressive 33 years’ service under her belt, Leslie is MDDUS’ longest serving employee. She started as a teenager in 1980, processing membership applications and renewals and handling telephone enquiries. Members’ subscription details were handwritten or typed into large ledgers while Leslie took calls on one of only two available telephone lines. She had only intended to remain in her post for a few months but enjoyed the role so much she accepted an offer to stay. Now, Leslie continues to process applications, renewals and member correspondence but the way she works has completely changed. Membership has massively increased and nearly all of Leslie’s work is handled electronically. “Things have changed a lot since I started but it’s still a varied job with no two calls the same. It’s constantly busy and there’s always a real buzz about the department.” Peter Johnson, risk manager Protecting and enhancing MDDUS’ reputation is central to Peter’s role. He joined the Union in 2009, having graduated from the University of Edinburgh in 1988 with a science degree before moving into more businessfocused roles. He developed an interest in quality management and is now a fellow of the Chartered Quality Institute and a specialist of the Institute of Risk Management. Peter chairs the MDDUS underwriting group, which considers membership applications, and works to maintain and continually improve the systematic approach to the analysis of risk within MDDUS. He also regularly reports to the Board on key trends in risk data, and compiles the strategic risk register. “This is a fascinating and important area of risk to work in, especially during a period of an increasing claims culture within the UK. It feels like quite a unique role, to have the chance to work closely with doctors, dentists and lawyers in managing risk on a daily basis.”

Review of MDDUS activities

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Finance director’s report The financial uncertainties of the economic environment continue and although there may be some early indications of a greater degree of stability returning, for the foreseeable future MDDUS will continue to be faced with the challenge of how best to manage the capital value and returns from its investments in order to meet future liabilities as they fall due and at the same time ensure the Union’s ability to meet the needs of its members. Closer to home, we also see further evidence emerging in the market of an increase in the frequency and value of medical and dental claims, and the Union’s own experience is no different. This increased cost has, of course, the potential to impact adversely on reserves.

Financial overview However, despite these challenges I am pleased to report that building on the strong performance in 2011, the financial results for 2012 show further consolidation of the Union’s financial position. The income and expenditure account shows a surplus for the year on ordinary activities after taxation of £35.963m (2011: £25.892m). It is encouraging to note that although subscription income continues to increase, this was not solely as a reflection of the need to increase rates in certain areas of membership but is more a reflection of the increase in membership numbers. MDDUS in 2012 continued to attract significant numbers of UK general medical practitioner members. As will be seen later, this growth has brought with it growth in our asset value.

Figure 1 Comparison of the provision for liabilities to the underlying asset allocation £450m £400m £350m £300m £250m £200m £150m £100m £50m 0 12

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Equities and other net assets Cash, gilts and bonds

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Provision for liabilities

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MDDUS Annual Report and Accounts 2012

MDDUS reviews subscription rates for general medical and dental practitioners and for consultants in private practice on an annual basis. As detailed elsewhere in this report MDDUS has recognised that in recent years the frequency of medical and dental general practitioner claims reported in Scotland has been lower than elsewhere. Differential subscriptions are charged to private consultants in relation both to the risk which the specialty poses to the mutual pool and to the level of income. The majority of MDDUS members in 2012 either saw a freeze in their subscription or a below inflation increase. Those members in high-risk/high-earnings categories saw an increase in their rate commensurate to the risk that they pose to the mutual fund.

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Members’ subscription and other income rose from £53.6m to £57.9m in the year – an increase of 8 per cent. This increase is as a result of a new stream of rental income from our property in London, an increase in subscription rates but most significantly as a result of the increase in membership numbers as has been detailed earlier in the report. In 2012 active membership rose by 8.8 per cent. It is important to stress that membership rates are set in line with actuarial advice and the target is to collect sufficient funds to cover all payments that may become due in respect of claims and non-claims matters, as well as general administration costs. Such claims and non-claims may of course take many years to be reported and to develop into matters necessary for MDDUS to deal with. It is not unknown for a claim to be notified 20 years after the incident, especially in relation to high-value brain-damaged baby cases.

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The balance sheet indicates that the total net assets of the Union have increased by 27.3 per cent in the year to £249.6m (2011: £196m). Total assets before the provision for liabilities have grown by 13.7 per cent. Members will be aware that in addition to the claims and non-claims matters that have been reported to the Union at 31 December 2012 and incorporated in the financial statements, there will be claims and non-claims reported at a later date for incidents arising from periods of membership ending before 31 December 2012 – the so-called incurred but not reported (IBNR) liabilities. It is the aim of MDDUS to maintain a surplus in excess of the actuarial valuations of both reported and IBNR claims and non-claims. This surplus acts as a cushion against possible future adverse claims experience or investment performance. It is reassuring to note that in the past year it has been possible to maintain this financial assurance. I can advise that the latest actuarial report confirms that the Union has sufficient funds to meet the IBNR liabilities in respect of which the Union may exercise its discretion in the future.

Financial performance


Claims costs and associated legal costs Claims costs and associated legal costs are the aggregation of all the costs associated with claims paid in the year together with the charge that takes account of the movement in the value of all claims reported to the Union at 31 December 2012. These costs include payments to lawyers, counsel, experts and the in-house legal and advisory teams, as well as compensation payments and adverse legal costs. The Union has also incorporated within the actuarial provision an amount for exceptional claims. I am pleased to report that in the year these costs decreased by 27 per cent to £15.560m (2012: £21.402m). Although as we look forward we see claims costs and the frequency of claims increasing, as a result of the skilled management of existing cases by our legal and advisory teams we have seen many current cases either being successfully defended or else settled for less than anticipated.

members without running the added risk associated with overseas trading. The market value of group investments was £399m against a cost of £366m at the year end. During the year the Union’s revaluation reserve rose by 79.7 per cent to £33m. Figure 1 details the relationship in recent years between the main asset categories and liabilities.

Advisory and non-claims legal costs Advisory and non-claims legal costs apply to those matters with which members seek assistance that are not claims. This would include regulatory matters such as those involving the GMC or GDC, as well as other general matters relating to a member’s professional clinical practice. These costs have increased in the year by 96 per cent to £9.4m (2011: £4.8m). This figure represents not just payments made in the year but the adjustment needed to increase the provision in the balance sheet for events that have been reported to MDDUS at 31 December 2012 but will be paid at some time in the future.

£250m

Administration costs Administration costs are those overhead costs that are incurred in running the Union that are not claims or non-claims related. Administration costs increased by 12.2 per cent to £7.46m in the year (2011: £6.65m). Underlying costs on the previous year remained relatively constant but the increase came about as a result of essentially two factors: following a revaluation of our extended and refurbished premises in Glasgow an amount was written off the value of the property and secondly, although we have a new stream of rental income from our new building in London, there are the additional property related costs. Investments MDDUS keeps its investment strategy under constant review. Our current investment strategy is to select a cautious investment portfolio with a spread of asset classes in the expectation that over the long term (which is our timescale of investment) the portfolio will ride out the vagaries of the market. In essence this means that at 31 December 2012 MDDUS had more than half of its investments held in cash, gilts and bonds to match the reported claims and non-claims liabilities in the balance sheet. The balance of the portfolio restricts losses in times of adverse trading but still allows the opportunity to take advantage of equity recoveries. This diversification is also maintained by the appointment of four managers to manage the funds, as well as having advisers who independently evaluate both the fund and managers’ performance. In 2012 MDDUS had a return on its investments net of management fees of 7 per cent. Some years ago MDDUS decided to concentrate on the provision of indemnity and advisory services to UK-based practitioners only and this has allowed it to focus on supporting these

Figure 2 Relationship between total assets less current liabilities and the provision for liabilities £450m £400m £350m £300m

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Total assets less current liabilities Provision for liabilities Provision for liabilities and charges MDDUS is convinced that discretionary occurrence-based protection remains the most effective and reliable basis of protection for the medical and dental professions. This means that the MDDUS balance sheet has to have sufficient assets to pay compensation for claims and non-claims matters (such as GMC/GDC referrals) reported at 31 December 2012 but for which payments will not be payable until many years in the future. In addition, we must also account for the potential cost implications of those incidents that will already have occurred prior to 31 December 2012 but not yet reported – the IBNR claims and non-claims. The MDDUS Board is confident that MDDUS has sufficient assets to meet these payments when they fall due; in other words that capital levels are adequate. The provision for liabilities and charges relating to all claims and nonclaims matters notified to the Union at 31 December 2012 decreased this year by just under 1.8 per cent to £168.0m (2011: £171.0m). Figure 2 details the reported provision for claims and non-claims in recent years which has remained relatively steady (albeit with a fall in 2012) and the steady increase in total assets less current liabilities (a rise of 13.7 per cent in 2012). This increase is a good indication of the ability of MDDUS to provide financial security to its members.

Summary There will be challenging times ahead but the financial results of 2012 demonstrate the continuing consolidation of the sound financial position achieved by MDDUS in recent years and this provides a solid financial foundation for the future.

2012 financial review

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Directors’ report Principal activity

Corporate governance

MDDUS, a private company limited by guarantee, is a mutual membership organisation founded in 1902 to offer assistance, advice and, where necessary, indemnity to doctors and dentists. All the benefits of membership are discretionary as set out in the Memorandum and Articles of Association. MDDUS, a company incorporated in Scotland, is the holding company of the group.

UK companies listed on the main market of the London Stock Exchange are required to describe in the annual report and accounts their adherence to the main principles outlined in the UK Corporate Governance Code (the Code).

In addition, the group has three wholly owned subsidiaries: MDDUS Insurance Limited, an insurance company incorporated and registered in Guernsey, MDDUS Education Limited, a risk and training company incorporated in Scotland, and MDDUS Property Limited, which has been incorporated in Scotland to manage the Union’s property in London.

Business review

Directors who served in 2012

Director

Number of Board Meetings attended*

Anderson, I W R

7 (7)

Battison, E W

5 (7)

Beattie, A D

4 (4)

The Board

Bennet, G C

6 (7)

Berry, J P

7 (7)

The Board currently consists of 19 directors, comprising 17 nonexecutive directors and two executive directors: the chief executive and finance director. There are three lay non-executives: one who is an experienced risk management professional, one who has actuarial and business development experience with large financial services companies and one from a legal background. Any member can stand for election to the Board. With effect from the AGM in 2005, nonexecutive directors normally serve no more than three, four-year terms of office, subject to ensuring appropriate succession for key office bearers. All non-executive directors who are members of the Union pay the appropriate membership subscription to the Union. Some also receive payments for expert witness services at the standard rate, the total amount paid in 2012 being £450 (2011: £300).

Black, J

6 (7)

Chambers, W A

5(7)

Chapman, J M

7 (7)

Critchley, H O D

5 (7)

Dickson, G C A

7 (7)

Donald, R

7 (7)

Fleming, A

7 (7)

Garner, J A M

6 (7)

McDonald, P

5 (7)

Needham, G

6 (7)

Pearson, D W M

6 (7)

Semple, L

7 (7)

Slevin, C J

7 (7)

Sweeney, B

7 (7)

Wray, D

2 (4)

A review of the financial performance of the business during the year is included in the 2012 financial review on pages 12 and 13.

The Board appoints directors to the positions of chairman and vice chairman. In 2012, the Board agreed that the Finance Committee should be reconstituted as the Investment Committee. The roles of chairman and chief executive are separate and their profiles clearly distinguish between the running of the Board and executive responsibility for the running of the business. The Board met seven times in 2012 with an attendance rate of 89 per cent. The individual attendances of Board members are detailed in the table (right). A scheme of delegation is in place under which specific matters are reserved for the Board alone. These include such issues as the approval of the strategic plan, approval of the annual report and accounts, alterations to the Memorandum and Articles of Association of the Union and changes to the provision of services to members.

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The Union is not a listed company but in seeking the highest standards of corporate governance has modelled its own governance arrangements on the guidance provided by the Code. It has therefore considered it appropriate to include in this annual report and accounts a statement, where applicable, in accordance with the Code.

MDDUS Annual Report and Accounts 2012

* In brackets is the number of meetings the director was eligible to attend during the year. See page 33 for a list of current Board members.


Board committees

There are four Board committees: Nominations, Remuneration, Investment and Audit. All non-executive directors serve on at least one committee and no members of the Investment Committee also serve on the Audit Committee. These four committees are chaired by the chairman (Nominations), vice chairman (Remuneration and Investment) and a senior non-executive (Audit). Each committee has a clearly defined remit and, in addition, the Investment and Audit committees also have a set of “reserved powers” covering issues that cannot be delegated to any other body. The work of the Audit Committee is described later in the report. The Nominations Committee is charged with identifying and nominating candidates to fill Board vacancies. There is a role profile for a non-executive director and an induction handbook for new directors. In suggesting suitable candidates the committee takes into account the structure, size and composition of the Board. The committee is also responsible for the processes by which evaluation of the Board and the evaluation of the performance of individual directors are undertaken. The committee meets as and when required, and during 2012 it met twice. The attendance rate was 100 per cent. The Remuneration Committee sets the policy for the terms, conditions and remuneration of the executive directors and certain senior staff. The committee also recommends the level of nonexecutive remuneration to the full Board. The committee met once in 2012 with an attendance rate of 100 per cent. As mentioned earlier, in 2012 the Board agreed to reconstitute the Finance Committee as the Investment Committee. In 2012, the Finance Committee met four times and had an attendance rate of 91 per cent. The Investment Committee now deals with all the Company’s investment matters, e.g. determining investment policy, overseeing the performance of the investment managers, while all other financial activities previously dealt with at the Finance Committee, such as monitoring income and expenditure, settling subscription pricing levels and agreeing budgets, have now come under the remit of the Board. The newly constituted Investment Committee met once in 2012 and had an attendance rate of 100 per cent.

Risk and controls The Board is responsible for the effectiveness of the processes and systems employed in the management of risk and the exercising of internal controls. Management is responsible for the identification, assessment, management and monitoring of risk and for developing, operating and monitoring the system of internal control.

The main risks facing MDDUS are: • Market risk. This is the risk of loss or of adverse change in the financial situation resulting, directly or indirectly, from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments. To mitigate this risk MDDUS investment policy takes into account our business, solvency position, long-term risk versus performance and underlying exposure. MDDUS has clear investment guidelines in place and the Investment Committee receives regular updates from investment managers. • Underwriting risk. This is the risk of loss due to inadequate pricing or reserving assumptions. MDDUS mitigates this risk by having suitable underwriting and reserving processes and procedures to ensure that statistical and accounting data are accurate and reliable. MDDUS obtains detailed actuarial advice with all costs identified and incorporated into our pricing model. MDDUS treats all members and prospective members consistently and equitably, balancing the interests of individual members with the interests of the membership as a whole and ensuring best value for MDDUS funds. • Operational risk. This is the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events. To mitigate this risk MDDUS has implemented an effective process to identify, document and monitor exposure to operational risk and track relevant operational risk data. A risk register is maintained that includes a description of key strategic risks together with an assessment of their frequency and impact on the Union. The register also includes the management actions taken and an indication of their efficacy. This is reviewed annually or more frequently if necessary, with the Audit Committee recommending any changes to the full Board. The Audit Committee is also charged with reviewing the internal financial controls of the Union and reporting to the Board. The system of control stems from the clear definition of reserved powers in place for the Board, Investment Committee, Audit Committee and the Senior Management Committee. There is regular reporting of financial information at all levels within the organisational structure. This includes the production of actual departmental monthly spend against budgeted spend, monthly management accounts and listings of all payments made including settlements and legal expenses. The Board also receives reports on all core claims and non-claims activity.

Directors’ report

15


The group’s investment managers operate on a discretionary basis, acting in accordance with clear investment guidelines. Compliance with these guidelines is monitored regularly by a firm of external investment risk consultants. This work allows the Investment Committee to assess the risks involved in the separate classes of investment. To support financial accountability, a fully integrated system of departmental budgeting is in place. This is aimed at ensuring compliance with agreed budgets and with strategic and departmental plans.

Going concern The financial statements are prepared on the going concern basis. In adopting the going concern basis the directors consider that the group has sufficient assets to continue in operation for the foreseeable future.

Statement of directors’ responsibilities The directors are responsible for preparing the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The financial statements are required by law to give a true and fair view of the state of affairs of the group and company and of the surplus or deficit of the group for that period. In preparing these financial statements, the directors are required to: • s elect suitable accounting policies and then apply them consistently • make judgements and estimates that are reasonable and prudent • s tate whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements • p  repare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business.

16

MDDUS Annual Report and Accounts 2012

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the preparation of the other information contained in the annual report including the Review of MDDUS activities, the 2012 financial review and the Directors’ report. Financial statements are published on the company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company’s website is the responsibility of the directors. The directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. Statement as to disclosure of information to auditors So far as the directors are aware, there is no relevant audit information of which the company’s auditors are unaware, and each director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company’s auditors are aware of that information. Auditors The retiring auditors, BDO LLP, offer themselves for re-appointment at the forthcoming Annual General Meeting. On behalf of the Board Professor Gordon C A Dickson Chief Executive and Secretary 16 August 2013


Audit Committee report MDDUS is committed to best standards of business practice, modelling its corporate governance arrangements on the UK Corporate Governance Code (UKCGC). Members of the Board have individual and collective responsibility for good governance, and the Audit Committee effectively acts as their watchdog in this respect. In the 2012 edition of the UKCGC there is a recommendation that a separate section of the annual report should describe the work of the Audit Committee. The committee’s major responsibilities during the year were: • r eview of final financial statements and recommending their approval to the Board • r ecommending the re-appointment of our external auditors, agreeing the scope of their work and their remuneration • r eviewing the effectiveness and independence of our external auditors • c onsideration before approval of any non-audit work given to the auditors to undertake • consideration and approval of the risk register • r eview and agreement of the internal audit programme, reviewing the results of the work carried out by our internal auditors, and deciding on any actions that need to be taken • reviewing the effectiveness of our internal auditors. The committee also has responsibility for other matters, such as whistle-blowing and oversight of the directors’ register of interests. External audit The committee met with the external auditors, BDO LLP, formally on three occasions during the year to discuss the nature and scope of the audit, to review (in some detail) the audit plan and lastly to review the outcome of the audit and to discuss issues arising and their resolution. At our first meeting with the auditors in the year we reviewed the group’s accounting policies to ensure that they remained appropriate and discussed in broad terms the major risks that the auditors were likely to consider in progressing their work. The committee agreed the audit plan with the auditors, having paid particular regard to issues of scope and materiality and agreed their remuneration.

Any non-audit services carried out by BDO LLP are strictly limited and have to be agreed in advance by this committee or by me on its behalf. This year these have been limited to tax compliance, iXBRL tagging of financial statements and VAT advisory work surrounding the acquisition of our office building in London. The effectiveness of our external auditors is assessed annually. We remain satisfied that they are delivering for our members in terms of the necessary scepticism and challenge in their work and also in terms of supporting the annual report process effectively. Internal audit Whilst the Board as a whole is responsible for risk, we have an internal risk management department. The manager of this department is responsible for running the risk register process each year and brings the proposed risk register to the committee for consideration and recommendation to the Board. We have outsourced our internal audit function to Deloitte, who run a programme of internal audit activity prioritised around our perceived risks. We reviewed the internal audit plan at the outset of the year. Over the course of our three meetings we reviewed the internal audit projects and discussed potential actions required with executive directors as necessary. We also receive feedback on the implementation of recommended actions when requested. We review the effectiveness of our internal auditors formally on an annual basis, using structured objective feedback from audit committee members, the managers of departments involved in the projects and our senior executives. We remain satisfied that they are delivering an appropriate service. The committee met three times in 2012 with an attendance rate of 73 per cent. Dr Judith M Chapman Audit Committee Chairman 16 August 2013

Audit Committee report

17


Independent auditor’s report Independent auditor’s report to the members Opinion on financial statements of the Medical and Dental Defence Union of In our opinion the financial statements: • give a true and fair view of the state of the group’s and the parent Scotland We have audited the financial statements of The Medical and Dental Defence Union of Scotland for the year ended 31 December 2012 which comprise the consolidated income and expenditure account, the consolidated and company balance sheets, the consolidated cash flow statement, the consolidated statement of total recognised gains and losses, the consolidated note of historical cost income and expenditure and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate

company’s affairs as at 31 December 2012 and of the group’s surplus for the year then ended; • have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Andrew McNamara (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor 4 Atlantic Quay 70 York Street Glasgow G2 8JX 16 August 2013 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)

18

MDDUS Annual Report and Accounts 2012


Financial statements for 2012 Consolidated income and expenditure account For the year ended 31 December 2012

Notes

Income Members’ subscriptions and other income

1[c]

Expenditure Claims costs and associated legal costs Advisory and non claims legal costs Administration costs

Surplus of income over expenditure Reinsurance recoveries

Realised gains/(losses) on disposal of fixed assets Investment income

2

1[g]&5

Surplus on ordinary activities before taxation Taxation Net income available for transfer to reserves

1[i]&6

2012

2011

£’000

£’000

57,880

53,591

15,560 9,448 7,464

21,402 4,809 6,646

32,472

32,857

25,408 2,451

20,734 192

27,859

20,926

620 8,170

(2,179) 7,807

36,649

26,554

686

662

35,963

25,892

All amounts relate to continuing operations

The notes on pages 23 to 32 form part of these financial statements.

Financial statements for 2012

19


Consolidated statement of total recognised gains and losses For the year ended 31 December 2012

2012

2011

£’000

£’000

Surplus on ordinary activities after taxation Unrealised surplus/(deficit) on revaluation of investments

35,963 17,587

25,892 (9,211)

Total net surplus since last annual report

53,550

16,681

Consolidated note of historical cost income and expenditure For the year ended 31 December 2012 2012

2011

£’000

£’000

36,649

26,554

2,917

5,592

Historical cost net surplus before taxation

39,566

32,146

Historical cost net surplus after taxation

38,880

31,484

Reported surplus before taxation

Difference between the historic cost gain on investments sold in the year from that on a revalued basis

The notes on pages 23 to 32 form part of these financial statements.

20

MDDUS Annual Report and Accounts 2012


Consolidated and company balance sheets As at 31 December 2012 Company Number SC005093

Notes

Group 2012

Group 2011

Company 2012

Company 2011

£’000

£’000

£’000

£’000

Fixed assets Tangible assets

7

17,179

3,361

3,842

3,360

Investments

8

398,691

364,161

395,010

344,498

415,870

367,522

398,852

347,858

23,879

21,931

20,232

18,914

7,911

5,479

7,384

5,327

31,790

27,410

27,616

24,241

30,045

27,614

29,630

27,713

301

177

243

177

30,346

27,791

29,873

27,890

1,444

(381)

(2,257)

(3,649)

417,314

367,141

396,595

344,209

167,712

171,089

167,712

171,089

249,602

196,052

228,883

173,120

Current assets Debtors and payments in advance

9

Cash at bank, in hand and on deposit

Creditors: amounts falling due within one year Sundry creditors and accrued charges

10

Corporation tax provision

Net current assets Total assets less current liabilities Provision for liabilities and charges

11

Total net assets Reserves Accumulated fund

12(a)

216,531

177,651

195,877

154,787

Revaluation reserve

12(b)

33,071

18,401

33,006

18,333

249,602

196,052

228,883

173,120

These financial statements were approved by the members of the Board on 17 May 2013. Brendan Sweeney Chairman

John Garner Vice Chairman

The notes on pages 23 to 32 form part of these financial statements.

Financial statements for 2012

21


Consolidated cash flow statement For the year ended 31 December 2012

Notes

2012

2011

£’000

£’000

25,670

28,141

Interest received

2,024

2,062

Dividends received

6,146

5,745

8,170

7,807

(562)

(231)

(14,473)

(278)

76

-

(88,077)

(108,076)

71,628

60,244

(30,846)

(48,110)

2,432

(12,393)

At 01/01/12

Cash flow

At 31/12/12

£’000

£’000

£’000

Cash at bank, in hand and on deposit

5,479

2,432

7,911

Net funds

5,479

2,432

7,911

Cash flow from operating activities

14

Returns on investments

Tax paid Capital expenditure and financial investment Purchase of tangible assets Sale of tangible assets Purchase of investments Sale of investments

Increase/(decrease) in cash in the year

Analysis of changes in net funds

Reconciliation of net cash flow to movement in net liquid funds

£’000

Increase in cash

2,432

Net fund at 1 January 2012

5,479

Net fund at 31 December 2012

7,911

The notes on pages 23 to 32 form part of these financial statements.

22

MDDUS Annual Report and Accounts 2012


Notes to the accounts For the year ended 31 December 2012

1. Accounting policies a) Accounting convention The accounts are prepared under the historical cost convention as modified by the revaluation of certain assets and investments and in accordance with applicable accounting standards. b) Basis of consolidation The consolidated income and expenditure account and balance sheet include the financial statements of the company and its subsidiary undertakings made up to 31 December 2012. No income and expenditure account is presented for the Medical and Dental Defence Union of Scotland as permitted by section 408 of the Companies Act 2006. The group surplus for the year included a surplus after tax of £38.172m (2011 £32.896m) which is dealt with in the financial statements of the parent company. In the company financial statements investments in subsidiary undertakings are carried at the lower of cost or net asset value. c) Subscriptions Subscription income comprises amounts receivable during the year, apportioned to accounting periods on a time basis. All subscription income is generated within the UK. d) Fixed assets The fixed assets are stated at cost or revalued amount. Depreciation is provided on bases which will write off the assets to an estimate of their residual value over their expected lives. Depreciation on fixed assets has been provided as follows: i) Computer equipment has been depreciated on the straight line basis at the rate of 25% per annum ii) Furniture, fittings, office equipment and motor vehicles have been depreciated on the reducing balance basis at the rate of 25% per annum. iii) Freehold property has been depreciated on the straight line basis over a period of 50 years. In accordance with SSAP 19 ‘Accounting for investment properties’, investment properties are revalued annually to open market value and no depreciation is provided. The directors consider that this accounting policy results in the financial statements giving a true and fair view.  The effect of this departure from the Companies Act 2006 has not been quantified because it is impracticable and, in the opinion of the directors, would be misleading. The aggregate surplus or deficit arising on revaluation is transferred to the revaluation reserve except where a deficit is deemed to represent a permanent diminution in value, in which case it is charged to the income and expenditure account.

e) Operating leases Rentals in respect of leasing agreements are charged to the income and expenditure account as incurred. f) Provision for liabilities and charges  Full provision has been made in the financial statements at discounted future settlement values in respect of estimated settlement and associated legal costs and salary costs of handling claims. This provision is based on actuarial advice and relates to all claims notified as at 31 December 2012. Full provision has been made in the financial statements at discounted future settlement values in respect of legal costs and salary costs of handling non claims. This provision is based on actuarial advice and relates to all incidents notified as at 31 December 2012. g) Dividends and interest  Dividends, interest on investments and short term deposits have been shown gross. Accrued interest on short term deposits and unfranked investment income dividends have been provided in the year. In addition, only franked investment income dividends received in the year to 31 December 2012 have been included. h) Investments  Listed investments held at 31 December 2012 are stated at the mid-market valuation on that date. Unlisted investments have been valued at the lower of cost or net asset value. Movements on revaluation are accounted for through the investment revaluation reserve or for permanent diminution through the income and expenditure account. i) Taxation  Corporation tax has been provided on all investment income and capital gains and adjusted for tax deducted at source from unfranked investment income using the rate of 24% (2011: 26%). No provision has been made for potential tax liabilities on unrealised gains arising from the revaluation of investments. Tax credits on dividend income have not been included in the tax charge. j) Pension costs  Defined contribution pension arrangements are made for certain employees to which contributions are made by the company. Amounts due to insurance companies in respect of these arrangements are charged to the income and expenditure account in the year to which they relate. In addition, subject to certain conditions, a number of employees have had the return on the pension contributions guaranteed. The liability accruing under this arrangement is calculated annually and any shortfall or surplus arising (over and above the level of actual contributions made) is recognised as a charge or credit in the income and expenditure account. The assets of pension schemes are held separately from those of the company in independently administered funds.

Financial statements for 2012

23


Notes to the accounts For the year ended 31 December 2012 (continued)

2. Surplus of income over expenditure

This is stated after charging: Emoluments of directors (excluding benefits in kind) Auditors’ remuneration Pension costs Depreciation on owned assets Leasing of property Auditors’ remuneration consists of: Group auditors - audit Group auditors - taxation compliance & VAT advice Other auditors - audit

Company only auditors’ remuneration

2012

2011

£’000

£’000

768 52 955 301 70

701 38 1,202 310 172

37 15 -

29 2 7

52

38

30

29

2012

2011

£’000

£’000

779 107

713 99

886

812

332 65

310 61

397

371

Number

Number

2

2

3. Emoluments of directors

The detail of directors’ emoluments (including executive directors) was as follows: Emoluments (including benefits in kind) Pension costs

The detail of the highest paid director’s emoluments was as follows: Emoluments (including benefits in kind) Pension costs

Number of directors to whom retirement benefits are accruing under money purchase pension schemes

24

MDDUS Annual Report and Accounts 2012


Notes to the accounts For the year ended 31 December 2012 (continued)

4. Employees’ remuneration 2012

2011

£’000

£’000

5,180 621 955

4,827 572 1,202

6,756

6,601

Number

Number

94 -

90 4

94

94

2012

2011

£’000

£’000

Franked Unfranked

5,001 1,145

4,715 1,030

Bank interest

2,024

2,062

8,170

7,807

Salaries (including executive directors) Social security costs Pension costs

Average number of employees in the year Administrative Manual

5. Investment income

Dividends

Financial statements for 2012

25


Notes to the accounts For the year ended 31 December 2012 (continued)

6. Taxation 2012

Current tax on income for the year through the income and expenditure account

2011

£’000

£’000

686

662

Factors affecting the tax charge The tax assessed for the year is lower than the standard rate of corporation tax in the UK. The difference is explained below. 2012

2011

£’000

£’000

36,649

26,554

standard rate of corporation tax in the UK of 26% (2011:28%):

2,350

1,833

standard rate of corporation tax in the UK of 24% (2011:26%):

6,627

5,202

Surplus of income over expenditure not taxed

(6,824)

(5,544)

Non taxable franked investment income of group

(1,209)

(1,237)

Unfranked & interest income of Guernsey subsidiary not taxed

(171)

(171)

(Gain)/loss on disposal of investments & assets

(152)

577

65

2

686

662

Surplus on ordinary activities before tax Surplus on ordinary activities before tax multiplied by the

Effects of :

Other Current tax charge through income and expenditure account

Provision has not been made in the accounts for tax of approximately £7.9m (2011:£4.8m) which would arise should the investments be sold at market value, included in the balance sheet. This is on the basis that there are no immediate plans to realise the assets. Capital losses brought forward of approximately £5m are available to reduce this liability.

26

MDDUS Annual Report and Accounts 2012


Notes to the accounts For the year ended 31 December 2012 (continued)

7. Tangible fixed assets Group

Freehold property

Furniture fittings & office equipment

Motor vehicles

Total

£’000

£’000

£’000

£’000

Investment property

Cost/Valuation

£’000

At 1 January 2012

2,999

-

778

448

4,225

Additions

796

13,336

95

246

14,473

Disposals

-

-

-

(180)

(180)

(645)

-

(472)

-

(1,117)

3,150

13,336

401

514

17,401

165

-

463

236

864

76

-

127

98

301

-

-

-

(112)

(112)

(241)

-

(590)

-

(831)

-

-

-

222

222

At 31 December 2012

3,150

13,336

401

292

17,179

At 31 December 2011

2,834

-

315

212

3,361

Revaluation At 31 December 2012 Depreciation At 1 January 2012 Provided during year On disposals Revaluation At 31 December 2012

Net book value

Financial statements for 2012

27


Notes to the accounts For the year ended 31 December 2012 (continued)

7. Tangible fixed assets (continued) Company

Freehold property

Investment property

Furniture fittings & office equipment

Motor vehicles

Total

Cost/Valuation

£’000

£’000

£’000

£’000

£’000

At 1 January 2012 Additions Disposals Revaluation

2,999 796 (645)

-

777 95 (472)

448 246 (180) -

4,224 1,137 (180) (1,117)

At 31 December 2012

3,150

-

400

514

4,064

165 76 (241) -

-

463 127 (590) -

236 98 (112) 222

864 301 (112) (831) 222

At 31 December 2012

3,150

-

400

292

3,842

At 31 December 2011

2,834

-

314

212

3,360

Depreciation At 1 January 2012 Provided during year On disposals Revaluation At 31 December 2012 Net book value

Group and Company

Freehold property

Investment property

Furniture fittings & office equipment

Motor vehicles

Total

Group

£’000

£’000

£’000

£’000

£’000

Carrying value based on historical cost

4,637

13,336

267

292

18,532

4,637

-

266

292

5,195

Company Carrying value based on historical cost

As reported in the 2011 Annual Report the Union acquired the property at 167 Bath Street the building adjacent to Mackintosh House. This property was refurbished during 2012 and the two buildings linked. This “new building” was valued by David Tuckett BSc MRICS of Rushtons International, an external firm of asset valuers, on an Existing Use Value basis at 31 December 2012 at a value of £3.150m. In addition MDDUS Property Limited, a wholly owned subsidiary of the Union, in August 2012 acquired 1 Pemberton Row, London at a cost of £13.336m. The Union already occupied the fourth floor as its London office. All other floors are leased to tenants on an open market basis. No formal valuation of this building has been carried out as the directors are of the opinion that the cost price fairly reflects its valuation at 31 December 2012. The furniture, fittings and office equipment were revalued by Matthew Radmilo of Rushton International, an external firm of asset valuers, on a Value to the Business basis at 31 December 2012 at a value of £400k. Capital Commitments Capital expenditure approved and contracted for amounted to £nil (2011:£789k)

28

MDDUS Annual Report and Accounts 2012


Notes to the accounts For the year ended 31 December 2012 (continued)

8. Investments Group 2012 Valuation

Company 2011

£’000

£’000

£’000

364,161 88,077 (71,017) 17,470

327,719 108,076 (62,423) (9,211)

344,498 101,576 (68,538) 17,474

300,738 108,276 (55,355) (9,161)

398,691

364,161

395,010

344,498

398,691 -

364,161 -

346,807 48,203

314,286 30,212

398,691

364,161

395,010

344,498

365,755

345,777

362,139

326,183

Listed investments Unlisted investments

Historical cost

Company 2012

£’000

Market value at 1 January 2012 Additions Disposals Surplus/(deficit) on revaluation Market value at 31 December 2012

Group 2011

During the year the company acquired 18,000,000 ordinary shares of £1 in MDDUS Property Limited. Unlisted Investments at 31 December 2012 relate to the Company’s holding of the entire issued share capital of 1,700,000 ordinary £1 shares of MDDUS Education Limited, a risk assessment and training company, incorporated in Scotland, the entire issued share capital of 30,000,000 ordinary £1 shares of MDDUS Insurance Limited, an insurance company incorporated and registered in Guernsey and the entire issued share capital of 18,000,000 ordinary £1 shares of MDDUS Property Limited, a property company incorporated in Scotland.

9. Debtors and payments in advance Group 2012

Trade debtors Other debtors Payments in advance Amounts owed by subsidiary undertakings

Group 2011

Company 2012

Company 2011

£’000

£’000

£’000

£’000

23,094 631 154 -

21,208 583 140 -

19,724 328 154 26

18,435 339 140 -

23,879

21,931

20,232

18,914

All amounts shown under debtors fall due for payment within one year.

Financial statements for 2012

29


Notes to the accounts For the year ended 31 December 2012 (continued)

10. Sundry creditors and accrued charges Group 2012

Deferred income Other taxes and social security costs Sundry creditors and accruals Subsidiary undertakings

Group 2011

Company 2012

Company 2011

£’000

£’000

£’000

£’000

28,093 270 1,682 -

26,099 191 1,324 -

28,093 209 1,288 40

26,099 183 1,252 179

30,045

27,614

29,630

27,713

Non Claims

Total

£’000

£’000

£’000

158,214 15,560 (22,251)

12,875 9,448 (6,134)

171,089 25,008 (28,385)

151,523

16,189

167,712

11. Provision for liabilities and charges

Claims Group and company At 1 January 2012 Charged to income and expenditure account in year Paid in year At 31 December 2012

The provision represents the discounted value of expected settlement and associated legal costs and salary costs of handling claims and non claims activity of all notified incidents at 31 December 2012.

30

MDDUS Annual Report and Accounts 2012


Notes to the accounts For the year ended 31 December 2012 (continued)

12. Reserves Group 2012

Group 2011

Company 2012

Company 2011

£’000

£’000

£’000

£’000

177,651 2,917 35,963

146,167 5,592 25,892

154,787 2,918 38,172

116,497 5,394 32,896

216,531

177,651

195,877

154,787

At 1 January 2012 Increase/(decrease) in valuation of investments & fixed assets Transfer of realised gain

18,401 17,587 (2,917)

33,204 (9,211) (5,592)

18,333 17,591 (2,918)

32,888 (9,161) (5,394)

At 31 December 2012

33,071

18,401

33,006

18,333

a) Accumulated fund At 1 January 2012 Transfer from revaluation reserve Transferred from income and expenditure account At 31 December 2012 b) Revaluation reserve

The transfer from revaluation reserve represents the unrealised gain in prior years on those investments sold in the current year and therefore now realised.

13. Reconciliation of movement in funds

2012

2011

£’000

£’000

Net surplus for the financial year Other recognised gains/(losses) relating to the year

35,963 17,587

25,892 (9,211)

Total recognised gains

53,550

16,681

196,052

179,371

249,602

196,052

Opening funds available to meet future liabilities as previously stated Closing funds available to meet future liabilities

Financial statements for 2012

31


Notes to the accounts For the year ended 31 December 2012 (continued)

14. Reconciliation of operating surplus to net cash flow from operating activities

2012

2011

£’000

£’000

Operating surplus Depreciation charges Diminuation in value of assets Loss on disposal of assets Increase in debtors Increase in creditors (Decrease)/increase in provisions

27,859 301 404 (1,948) 2,431 (3,377)

20,926 310 9 (1,754) 2,397 6,253

Net cash inflow from operating activities

25,670

28,141

15. Other financial commitments Group and Company The following payments under non-cancellable operating leases are committed to be paid within one year in respect of land and buildings:

2012

2011

£’000

£’000

142

165

142

165

Operating leases which expire: Over five years

16. Member’s guarantee The Medical and Dental Defence Union of Scotland is a company limited by guarantee of up to £1 per member.

17. Related party disclosures The company has taken advantage of the exemption conferred by Financial Reporting Standard 8 “Related party disclosures” not to disclose transactions with its wholly owned subsidiaries. The directors do not consider there to be any one single controlling party of the company.

32

MDDUS Annual Report and Accounts 2012


The MDDUS Board and honorary fellows Chairman Brendan Sweeney2,3,4 MBE MA MBChB DRCOG FRCGP Chairman Alistair D Beattie (retired 21 September 2012) MD FRCP (Glasg, Lond & Edin) FFPM

Judith M Chapman1 MA MB BChir FRCGP DRCOG

Robert Donald1,3 BDS (Hons) DGDP (UK)

Chief executive officer and secretary * Gordon C A Dickson2 MLitt PhD FCII FIRM

Alan J Fleming ACII

The Right Honourable Dame Elish Angiolini DBE QC Eric W Battison2 BDS FDSRCS (Edin) MGDSRCS (Edin) MGDSRCPS (Glasg) George C Bennet4 BSc MBChB FRCS Jonathan P Berry MB ChB MBA MA

1,3

J Douglas Bell MBChB FRCP (Edin) FFOM DIH

Hilary O D Critchley4 BSc (Hons) MBChB (Hons) MD FRCOG FRANZCOG FFSRH FMedSci FRSE

Vice chairman John Garner2,3,4 MBChB FRCGP DCH DRCOG

Other members of the Board Ian W R Anderson1 CBE FRCS (Glasg, Ed, Eng) FRCP (Glasg, Ed, Lond) FCEM FIFEM Hon FACP DSc

Honorary fellows Alistair D Beattie MD FRCP (Glasg, Lond & Edin) FFPM

W Alastair Chambers1 MD MEd FRCA FFPMRCA

John K Davidson OBE MD FRCP (Edin & Glasg) FRCR FACR (Hon) FRANZCR (Hon) Peter Edmond CBE TD MBChB FRCS (Ed & Glasg) FRCP (Edin)

2

Wallace S Foulds CBE MD ChM FRCS (Eng & Glasg) DO DSc (Hon) FRCOphth (Hon) FRACO (Hon) FCMSA (Hon)

Peter McDonald2 MBBS MS (Southampton) FRCS (Eng) Gillian Needham2 MBChB (Hons) FRCP (Edin) FRCS (Edin) FAcadMedEd

Douglas G Garvie OBE FRCGP

Donald W M Pearson2 BSc (Hons) MBChB FRCP (Edin & Glasg) Linsey C Semple2 MB ChB FRCGP DRCOG *Colin J Slevin2 MA (Hons) MBA CA David Wray (Retired 21 September 2012) MD BDS FDS RCPS FDS RCS (Ed) F Med Sci

James Graham MBChB FRCS (Ed & Glasg) John R Griffiths BA (Oxon) LLB WS Martin M Lees MD FRCP (Edin) FRCS (Ed) FRCOG

James Black4 FFA

Key 1 Members of the Audit Committee 2 Members of the Investment Committee 3 Members of the Nominations Committee 4 Members of the Remuneration Committee * Executive directors

The MDDUS Board and honorary fellows

33


Management and professional staff MDDUS senior management Chief executive officer and secretary *Gordon C A Dickson MLitt PhD FCII FIRM Finance director *Colin J Slevin MA (Hons) MBA CA Head of professional services James Rodger BSc MBChB BA MBA FRCGP FRCP (Edin) DMJ General counsel Simon Dinnick BA (Hons) Head of human resources Paul Gray BA FCIPD Heads Advisory services (dental division) Aubrey Craig BDS FDS RCPS (Glasg) MPhil MBA Advisory services (medical division) John Holden MB BS MPhil MRCGP MFFLM DCH DRCOG Anthea Martin BMSc MBChB LLB MPhil MFFLM DRCOG PgCert Finance Rekha Bhatt BSc PgDipAcc FCCA PgCert Financial controller William G McMillan CA ICT Theo Theodorou BSc (Hons) ONDA/ONMP PgD IT CCNA MCP PgCert Information systems Ian Frame MCTS PgCert

Marketing and external relations Gaelle Ainslie BA (Hons) PgCert Membership services Stephen G Kelly PgCert

Mary M Peddie MBChB MML DRCOG DFSRH FRCGP Claire Renton BDS FDS RCPS (Glasg) MML

Risk management Peter Johnson BSc PgCert FCQI CQP FCMI SIRM

Desmond Watson MA(Oxon) LLM BM BCh FRCS(Eng) MFFLM

Legal services David Holmes LLB (Hons) Dip LP

Mike Williams BDS LLM DGDP MGDS RCS (Eng) FFGDP (UK)

Emma Parfitt LLB (Hons) French Diploma of Law

Employment law advisers Janice Sibbald BA (Hons) HRM MCIPD

Training and consultancy Liz Price BA MSc MBPS MIHM Medical and dental advisers Rachael Bell BDS MPhil MJDF RCSEng PgCert (Dental Anxiety) Richard Brittain BMedSci BM BS PGDipLaw MRCP

Liz Symon MCIPD Practice advisers Scott Obrzud RN (Dip) PMVTS MIHM Helen Ormiston MBA Pg Dip MS

Susan Gibson-Smith MBChB DRCOG MRCGP MPhil

Lawyers Lyn Beattie LLB Dip LP NP

Gail Gilmartin MBChB MPhil

James Doake BSc (Hons) Dip Law

Andrew M Hadden BDS MPhil MGDS FDS RCPS (Glasg) FFGDP (UK) Cert Ment RCS (Eng) Cert Pract App RCS(Eng)

Ciara Deasy BA (Hons) Dip Law

Doug Hamilton BDS LLM MJDF RSCEng PG Cert (Empl. Law)

Sara Foster BA (Hons) Dip Law Joanna Harden LLB (Hons) Dip LP

Anahita Kirkpatrick MBBS BSc MFFLM

Lindsey M McGregor LLB (Hons) Dip LP NP

Riaz Mohammed MBChB MPhil MD (Glasg) FRCS (Glasg) FRCS (Edin)

Clare Pearce BA (Hons) PG Dip Law

Naeem Nazem MBChB BSc(Hons) MRCP LLB(Hons) Caroline Osborne-White MA MB BChir (Cantab) MA (KCL) MRCGP DFSRH

(* Executive members of the Board)

34

J Barry Parker MBChB MSc MML FRCGP DRCOG DCCH

MDDUS Annual Report and Accounts 2012

Karen Purchese LLB (Hons) Denise Ritchie LLB (Hons) Dip LP NP Susan Trigg BA (Joint Hons) MA PG Dip Law


External professional advisers Auditors BDO LLP Chartered Accountants and Registered Auditors 4 Atlantic Quay 70 York Street Glasgow G2 8JX Bankers Bank of Scotland 54-62 Sauchiehall Street Glasgow G2 3AH Internal auditors Deloitte Lomond House 9 George Square Glasgow G2 1QQ Investment consultants Broadstone Pensions & Investments 55 Baker Street London W1U 7EU

Investment managers Barclays Wealth Aurora 120 Bothwell Street Glasgow, G2 7JT Brewin Dolphin Sixth Floor Atria One 144 Morrison Street Edinburgh, EH3 8EX Newton 2 Festival Square Edinburgh EH2 9SU Royal London Asset Management 30 Cornet Street St Peter Port Guernsey GY1 1LF Actuaries Milliman UK Consultants & Actuaries 11 Old Jewry London EC2R 8DU

Insurance advisers Aon Commercial Insurance Sentinel, 103 Waterloo Street Glasgow G2 7BW Insurance company managers Aon Insurance Managers (Guernsey) Limited PO Box 33 Maison Trinity, Trinity Square St Peter Port, Guernsey GY1 4AT Solicitors Morton Fraser LLP Quartermile Two 2 Lister Square Edinburgh EH3 9GL Shepherd and Wedderburn LLP 1 Exchange Crescent Conference Square Edinburgh EH3 8UL

Photographic credits Commissioned photography by Murdoch Ferguson (www.ferguson-imaging.com), Headshot London (www.headshotlondon.co.uk), Patrick White, Apollo Photographs Ltd and Claire Millar Other photography: Page 8: BMJ; Page 9: ADAM 2012 Conference; Page 10 upper right: NHS Forth Valley; Scottish Clinical Simulation Centre

Management and professional staff / External professional advisers

35


The Medical and Dental Defence Union of Scotland Mackintosh House 120 Blythswood Street Glasgow G2 4EA London office 1 Pemberton Row London EC4A 3BG T: 0845 270 2034 Membership Services Department: 0845 270 2038 F: 0141 228 1208 E: info@mddus.com www.mddus.com The Medical and Dental Defence Union of Scotland, Registered in Scotland No 5093 at Mackintosh House, 120 Blythswood Street, Glasgow G2 4EA. The MDDUS is not an insurance company. All the benefits of membership of MDDUS are discretionary as set out in the Memorandum and Articles of Association.

MDDUS Annual Report and Accounts 2012