Page 171 - Pharmacy Appeals 1/4/04 to 31/3/05

NHS Resolution Annual report and accounts 2021/22 147

CNST IBNR: reasonable range
The CNST IBNR provision is the single largest element For this assessment, a number of assumptions are varied
within the total provision. Changes to the assumptions together but the variations are limited to those that could
underpinning this element have the greatest potential have reasonably been chosen based on the same analysis
to affect the estimate of the total provision. of past data. Changes in individual assumptions may have
a greater or smaller impact on the provisions estimate.
The CNST IBNR provision in the accounts is based on a
set of chosen assumptions. It is possible to have a range Although it should be noted that this in itself does not
of different results if a different set of assumptions had reflect the potential uncertainty in the assumptions
been chosen. To illustrate this, a reasonable range is underpinning the provision as future experience may
shown in the following material to demonstrate how differ to the past, changes may occur in the claims
different judgements on the main assumptions, given and legal environment, and the modelling approach
the current environment and the same overall approach, may not be a perfect representation of real life.
could result in different values for the provision.

IBNR reasonable range Value Difference to accounts estimate
Baseline CNST IBNR £62.0 billion

Reasonable upper range £81.1 billion 30.7%

Reasonable lower range £43.8 billion -29.4%

In prior years, the reasonable range has been derived by CNST IBNR: sensitivity of provision
varying the assumptions specified for PPO claims - as to other assumptions
these are the most material assumptions in the CNST
The sensitivity analysis that follows indicates how
IBNR provisions. Plowever as per last year, the reasonable
wider variations in individual assumptions would affect
range presented this year also varies the assumptions
the provision. This demonstrates the extent to which
specified to allow for Covid-19. The impact of varying
plausible differences between the assumptions chosen
the Covid-19 assumption was c+£1.4 billion /-£0.9
and actual future experience could affect future years'
billion. Given the reduced uncertainty around Covid-19
provisions and the ultimate costs of settling claims.
and the materiality of Covid-19 provisions, we have only
varied the PPO assumptions. Plence the results above The ranges of the sensitivity tests that follow are based
were achieved by varying the following assumptions, on the variability observed in past data. They do not
all of which could have reasonably been applied: represent the maxima or minima of past observed values,
nor the range of possible outcomes, but they do capture
• The estimate for numbers of PPO damages claims
future values that could plausibly occur. Each change
for the incident years 2016/17 onwards;
is shown separately, but in practice combinations are
• The probability of defence for PPO type claims; possible, as different assumptions can be correllated.
• The average cost for PPO damages;

• PPO damages claims inflation;
• The creation to settlement lag for PPO claims;

• The Covid-19 related claims costs.
In summary, the provision in the accounts for CNST
IBNR could have been reasonably set at a value
between £43.8 billion and £81.1 billion, if the
same data, method and approach were used, but
different reasonable assumptions were selected
on the basis of the past data. This is compared
to the accounts estimate of £62.0 billion.