Page 158 - Pharmacy Appeals 1/4/04 to 31/3/05

134 Financial statements

7.1. Reconciliation of Note 7 to Statement of comprehensive net expenditure

Reconciliation of Note 7 to Ex-RHA ELS CNST DHSC ELGP ELSGP
comprehensive net expenditure clinical

£0 0 0 s £0 0 0 s £0 0 0 s £0 0 0 s £0 0 0 s £0 0 0 s

Unwinding of discount/
953 16,590 290,785 36,571 0 2,259
finance charge
Increase in known
1,198 38,279 8,408,657 221,273 0 481,934
claims provision
Provision not required
(546) (18,744) (2,827,151) (91,359) 0 (159,697)
written back
Change in discount rate
19,234 429,928 40,872,916 1,153,134 0 122,368
(known claims and IBNR)
lncrease/(decrease) in
(6 ,0 0 0 ) (33,768) (3,059,000) (256,027) 0 (147,000)
provision for IBNR
Provision expense charged to
Statement of comprehensive 13,886 415,695 43,395,422 1,027,021 0 297,605
net expenditure
Total charge to Statement of
14,839 432,285 43,686,207 1,063,592 0 299,864
comprehensive net expenditure

7.2. Explanatory notes Developments over the year
affecting the provisions
Nature and scope of the obligation
Discount rates
NHS Resolution administers indemnity cover for clinical
negligence and non-clinical claims under twelve One of the key assumptions used in calculating the
schemes or arrangements. Provisions are calculated in provisions are the discount rates used to place a
accordance with IAS 37 and relate to liabilities arising present value on projected future cashflows. Since the
from incidents covered by these arrangements. The discount rates are prescribed by HM Treasury, the rates
three key elements of NHS Resolution's provisions are: are outside the formal control of NHS Resolution.

• Claims received by NHS Resolution (known claims) NHS Resolution's provisions are particularly sensitive
to the long term and very long term discount rates.
• Settled periodical payment orders (PPOs) where
This reflects the long term nature of the liabilities
the settlement of a claim involves payments to the
which is driven by the reporting and settlement
claimant into the future, generally for their lifetime
delays as well as the fact that many high value
• Incurred but not reported (IBNR) provision claims are settled as a PPO with payments provided
where claims have not yet been received but over the remaining lifetime of the claimant.
where it can be reasonably predicted that:
This year, there was a significant reduction in the long
- an adverse incident has occurred, and term and very long term discount rates prescribed by
- a transfer of economic benefits will occur, and HM Treasury, which increased the provision by £42.6
billion. Although the change in discount rates prescribed
- a reasonable estimate of the likely value
by HM Treasury has a material effect on the value of the
can be made.
provisions, it does not alter the cost of settling claims in
The schemes that we administer are shown the short-term - which is driven by the frequency and
in the Appendix on page 159. severity of claims and the legal environment in which
the claims are settled (e.g. the personal injury discount
rate).As such the £42.6 billion increase in the provisions
reflects a change in the way the liabilities are valued,
rather than a change in the underlying liabilities.