Page 162 - Pharmacy Appeals 1/4/04 to 31/3/05

138 Financial statements

The resulting adjusted claim values are then discounted - For CNST, ELS and DHSC clinical liabilities,
for the time value of money (at the Treasury-prescribed these calculations are carried out separately
rates) to give a present value at the accounting date. for damages, NHS legal costs and claimant
costs, and for PPO and non-PPO type claims.
• Settled PPOs - The provision is determined on an
individual claim-by-claim basis and then aggregated - For this year, we have set separate assumptions
across all settled PPOs. Each claim's schedule of for claims reported under the EN Scheme
future payments is projected into the future on within the IBNR provision and those expected
each of their due dates, allowing for applicable to be reported outside of the scheme.
increases (e.g. inflation). A probability of survival
- The ELSGP provisions are determined in a similar
is then applied to each projected payment, based
manner but the reserving assumptions are based
on the individual's life expectancy and the fitted
upon the combined historical claims experience
mortality tables. This provides a weighting that allows
from periods where: claims were handled by
for the relative probability of each payment being
MDDUS and/or MPS; and also more recently where
made. This forms the cash flows which are then
discounted using the HM Treasury-prescribed discount claims have been handled by NHS Resolution.
rates to calculate a present value of the liability. - The assumptions used to determine the
• IBNR - To estimate the IBNR provision at the CNSGP provisions are based mainly on ELSGP
accounting date, the actuaries model the future cash experience, scaled up to allow for the fact
flows expected to arise from IBNR claims and calculate that CNSGP has wider exposure coverage.
a present value (at the HM Treasury-prescribed
- For CNSC and other coronavirus liabilities,
discount rates). The steps to arrive at an estimate are:
approximate methods have been used based on
- A characteristic pattern of claims reporting from levels of activity and assumed claim frequency
claim incident year is identified to determine the and severity based on similar clinical risks.
ultimate number of claims that are expected to 7.3 Key assumptions and areas of uncertainty
arise from incidents that have occurred in each
As with any actuarial projection, there are areas
past year up to the accounting date. This allows
of uncertainty within the claims provisions
a projection to be made for the number of IBNR
estimates. This is particularly so for:
claims expected to be reported in each future year.
- Assumptions are then made about the average • the CNST, ELS and DHSC clinical schemes,
claim sizes for different types of claim. Adjustments given the long term nature of the liabilities;
are made to these assumed claim sizes to • the GPI schemes, given the recent changes
allow for expected future claims inflation. in these arrangements with the take-
on of claims from two MDOs; and
- By combining the average claim sizes with the
claim numbers and patterns for the reporting • the CNSC and CTIS schemes and Covid-19 liabilities
to payment time lag appropriately, a projection covered by the other schemes, given the novel nature
is made for the total value of claim payments of the liabilities and the lack of claims experience.
for IBNR claims in each future year.
The IBNR provisions are subject to considerable
- For claims that are assumed to settle as PPOs, uncertainty. At a high level, the method used to calculate
an estimated payment pattern is used to model the provisions assumes that future experience will be in
the future cash flows, based on mortality line with past experience. In particular, the provisions
assumptions derived from the settled PPO are calculated on the basis of the current legal and
claims. Lump sum settlements are assumed to claims environment, including the current PIDR.
be paid out in full around settlement time.
- The final step in the process is to calculate
the present value of the projected future
cash flows (using the HM Treasury-prescribed
discount rates), and this gives the estimated
IBNR provision at the accounting date.