MIPS Annual Report 2011/12 by Medical Indemnity Protection Society

An nnual R Report 2011/1 12 Me edical Indemnity Protection S Society Ltd an nd its subsidia aries (Limiited by Guarantee and Shares) ABN N 64 007 067 281

Medical Indemnity Protection Society Ltd (MIPS) has been protecting, supporting and safeguarding the interests and professional character of its members since 1988. MIPS provides a range of membership benefits to over 34,000 members. Qualified, experienced, health professionals are involved in all areas of the group’s operations.

This financial report covers Medical Indemnity Protection Society Ltd as an individual entity and the group consisting of Medical Indemnity Protection Society Ltd and its subsidiaries (group). Medical Indemnity Protection Society Ltd is a company limited by guarantee and shares, incorporated and domiciled in Australia. Its registered office and principal place of business is: Level 3, 15-31 Pelham St Carlton VIC 3053 Australia A description of the nature of the group’s operations and its principal activities are contained in the directors’ report on pages 16 to19. The financial report has been authorised for issue by the directors on 24 October 2012. MIPS has the power to amend and reissue the financial report. Medical Indemnity Protection Society Ltd (MIPS) ABN 64 007 067 281 is an Australian Financial Services Licensee (AFS Licence 301912). MIPS Insurance Pty Ltd (MIPS Insurance) ABN 81 089 048 359 is a wholly owned subsidiary of MIPS and holds an authority issued by APRA to conduct general insurance business and is an Australian Financial Services Licensee (AFS Licence 247301).

MIPS Annual Reportt 2011/12

Conten C nts

MIPS Board

MIPS Chairman’s report

MIPS Insuran nce Chairma an’s report

MIPS Managiing Directorr and Chief Executives Officer's re eport

Go overnance rreport

Me ember bene efits

122

Me ember risk e education

155

Fin nancial rep port

Dirrectors’ rep port

166

Au uditor’s Inde ependence Declaration n

200

Sta atement of comprehen nsive income

211

Sta atement of financial po osition

222

Sta atement of changes in equity

233

Sta atement of cash flows

244

No otes to the ffinancial rep port

255

Dirrectors’ decclaration

666

Ind dependent a audit reportt

677

MIPS An nnual Report 20 011/12

Medica M al Inde emnity y Prote ection Socie ety Boa ard Th he MIPS B Board cons sists of a broad sprread of experienced d health an nd business prrofessiona als each of o whom brings thei r unique views v and experiencce to the orrganisation. Mr. William Turrner (Chairm man) MBBS LLB L FRCS F FRACS FACL LM FAICD Willia am holds the p position of Chairman of MIP PS and Deputyy Chairman off MIPS Insurrance. Based in Hobart, he has been a su uccessful orthhopaedic surge eon for over 28 2 years, and has a d degree in Law w which provide es a strong meedico-legal ba ackground. He e is c Preside ent of The Me edical Protectio on Society of T Tasmania Inc c., and a Director the current of the Winston Ch urchill Memorrial Trust. Form mer positions hhe has held in nclude Chairm man of the Medical Advvisory Board at a Hobart Priva ate Hospital, aand Director of Rehab Tasm mania.

Ms s. Susan Bittter BEc (Hons), Dip App p Fin&Inv, FIC CA, MAICD Susan is a directtor of Australia a Post and Ind dustry Super P Property Trustt and Chair of the dustry Super P Property Trust Audit and Compliance Com mmittee. Ind Forrmer positionss include Chie ef Operating Officer of Corrss Chambers Westgarth, W Boa ard me ember of Workksafe Victoria, Chief Executive Officer of S Slater & Gordon Australia and a Partner of Arthurr Andersen. Susan has had e extensive expe erience in corp porate govern nance and rela ated issues and risk k managemen nt, together witth knowledge of the insuran nce industry.

Mr. Anthony A. Fraser BJuris LLB Tony y was admitted d to practice as a a solicitor in n 1973. After sspending three e years in privvate practtice, he joined d a life insurer / funds manager, initially ass Legal Couns sel. Over the next n 20 ye ears he was in nvolved in sen nior managem ment positions, including five e years as Managing Directorr of the financial planning su ubsidiary of thhe parent company. In 19 998 he returne ed to private practice p and co ontinues to proovide legal services as a cons sultant.

Ad djunct Assoc ciate Profes ssor Leanne e Rowe AM, MBBS, MD, FRACGP, F FA AICD Lea anne graduate ed from mediccine at Monash h University in n 1980 and is currently work king in clinical c practicce in the area of o doctors' hea alth and as a m medical writerr. She is also a Pre esiding member for Medicall Panels in Vic ctoria and Sou uth Australia, and a serves as Deputy Chancelllor of Monash University and on the Boarrds of Mediban nk Private and d the I-M MED Network. She was awarde ed the Order of o Australia for services to m medicine and th he Rose Hunt Me edal by the Ro oyal Australian n College of Ge eneral Practitiioners for her contribution as a cha airman of the ccollege and he er work with disadvantaged d d youth. ln the past, she has s also worked in Aborig ginal health an nd as a rural general practitiioner. Her recent books include: "First do no harm m: being a resilient doctor in n the 21st centtury" and "Sav ve your life and the live es of those you love: your GP's G 6 step pla an to staying h healthy longer"".

MIPS Annual Reportt 2011/12

Mr. Kerry C.D. R Roxburgh BCom B MBA MESAA M Kerry y is a director of a number of o companies, including twoo listed public companies. He H is Chairman of the C Charter Hall Grroup and a non-executive ddirector of Ram msay Health Care e. He is Chairm man of Tasma an Cargo Airlin nes and of Tyrro Payments Ltd L and he is the former Deputy Cha airman of the Lawcover Gro oup. He is alsoo a member of o the AON Rissk vices Board off Advice. He was w one of the founders of oonline stockbro oker, E*Trade Serv Austtralia where fo or three years he was the Ch hief Executivee prior to becoming Chairma an, a position he held from 2000-20 007 when it wa as acquired byy the ANZ Ban nk. Prior to a an Executiv ve Director of the Hong Kon ng Bank of E*Trrade, Kerry sp ent 10 years as Austtralia Group in ncluding five ye ears as Manag ging Director oof that bank’s corporate finan nce subsidiaryy. Kerry qualifie ed as a Chartered Accountaant in 1969 an nd has expe erience in the ffinancial mana agement of the insurance, hhealthcare, tec chnology, property and resou urce sectors.

As ssoc. Prof. C Charles Stea adman MBBS MD FRAC CP FAICD AG GAF Charles graduate ed in medicine e from the Uniiversity of Que eensland in1980. After service al practitioner he trained in internal mediccine and gastrroenterology at a the as a rural medica dra Hospital in n Brisbane and then was a Fulbright scho olar at the May yo Princess Alexand nic in the USA A. He returned d to Australia as a Director of Gastroenterollogy and Clin Hepatology at Prrincess Alexan ndra Hospital and later ente ered private sp pecialist practice in Brisbane. He is a Fellow of the e Australian In nstitute of Com mpany Directo ors, Associate Pro ofessor of Med dicine with the e University off Queensland a and a Director of Queensland Doctors Mutual P Pty Ltd and Qu ueensland Ga astroenterolog gy Pty Ltd. He is also a natio onal aminer of the Royal Australa asian College of Physicianss and has serv ved overseas as exa an ADF medical officer.

Dr. Bruce B E. Ta aylor MDSc LDS L FRACDS FADI FICD D FPFA Bruc ce graduated B BDSc from the e University off Melbourne inn 1973, and en ntered private practtice for six yea ars. Since gaining his MDSc c in 1981, he ppractised as a specialist Orthodontist in privvate practice in Melbourne. His associatioon with the Un niversity nt and life contiinues as a parrt-time senior Lecturer and Consultant. A past presiden mem mber of the Au stralian Denta al Association (Vic), Bruce w was a Directorr of the Austra alian Denttal Council forr ten years and d is past Chairrman of the Poolicy Advisory y Committee of o the Professional P P Provident Fund d. Based in Me elbourne, he iss a Director of Victorian Medical Insurance e Agency Ltd, MIPS Insuran nce and the Auustralian Dental Research Foun ndation Ltd. Ma anaging Directtor

Drr. Troy Brow wning MBBS MBA Grad Dip D Ins GAIC CD ANZIIF (F Fellow) CIP FAIM F Tro oy graduated w with a Bachelo or of Medicine e and Surgery from Sydney University in 1984 1 and d went on to p private practice e in the northe ern suburbs off Sydney. His involvement in the me edical indemnity industry began in 1995 when w he was a appointed as a Medico-legal Adv visor and Claims Manager in i the Australian operationss of The MDU (Medical Defe ence Union) UK. In 19 997 he joined a Melbourne-b based professsional services s group providing exp pertise and ba ack-office supp port to a numb ber of medical defence orga anisations and their sha ared insurer. T Troy was an in naugural direc ctor of the Boa ard of Health Professionals P Ins surance Austra alia, later rena amed MIPS Ins surance. He w was appointed d as MIPS Gro oup CE EO in 2005 and d in 2010 wass appointed as s Managing Di rector of MIPS S, whilst continuing his role as MIPS S Insurance CE EO.

MIPS An nnual Report 20 011/12

MIPS M C Chairm man’s report r t I am a pleased to reporrt that the MIPS Gro oup has co ompleted another ssuccessfull year further stren ngthening g the secu urity that M MIPS offerrs memberrs with a $$35 million n addition n to members s’ surplus increasin ng Membe r’s equity to $185 million. m Details of the 2011/12 year fin nancial perform mance are con ntained in the reports of the Chairman of M MIPS Insurance and the Ma anaging Directtor and Chief Executive E Officer however i n broad terms s, the continue ed strong finanncial performa ance of the Gro oup is due d to; • • • •

Sig gnificantly bettter than expec cted claims exxpense. This re eflects better than t predictedd claims experrience of our me embers in relattion to the yea ar just ended a and prior yearrs reported cla aims Ab better than bud dgeted investm ment result de espite on-going difficult and volatile investtment market conditions Co ontinuing grow wth in member numbers On n-going attentio on to cost con ntrol.

The e 2011/12 yea ar results have e further advanced MIPS ob bjective of bein ng the pre-eminent “doctorss for doctors” medical m defen nce org ganisation in A Australia. MIPS S membership p is designed tto meet the ne eeds of memb bers and offerss a range of member m benefiits suc ch as medical indemnity inssurance, risk education e and 24 hour medico legal assistance provideed by health prrofessionals. Full dettails are conta ained in the me embership benefits handboo ok. MIP PS staff active ely advocate fo or the interestts of memberss’ by participatting on various s committees and working parties, p and th hey con ntribute submiissions to governments and d other professsional bodies to t further mem mbers’ interestts. MIP PS staff have also been acttive in preparin ng MIPS Insurrance for the introduction off a revised Ausstralian Prude ential Regulation Autthority (APRA A) prudential framework for Life L and Gene eral Insurers (L LAGIC). The LAGIC L reportinng regime bec comes effectivve from m 1 January 2 2013 and MIPS believes MIPS Insurance e is well preparred for its intro oduction. Folllowing a numb ber of new apppointments las st year the com mposition of the Board has rremained unch hanged during g the 2011/12 year. I thank my feellow MIPS dirrectors for the eir ass sistance and contributions ovver the year to o ensure we con ntinue to meet the objectivess of MIPS’ Constitution. I sh hould also like to congratulatte Mr Barry Gilbert, Chairman of MIPS M Insuranc ce, and his felllow directors for f their effective gov vernance of MIPS Insurancee during the ye ear. My thanks also go to the MIPS S Heads of Div visions and the eir stafff for their efforts and for succcessfully deliivering the ran nge of high h quality services to our m members.

R William W L Tu urner Cha airman

MIPS Annual Reportt 2011/12

MIPS M In nsuran nce Ch hairma an’s re eport MIIPS Insura ance (MIPS Si) has prroduced an n excellen nt result with w a proffit after tax x of $13.9 million com mpared to $3.5 $ millio on achieve ed last yea ar. The sig gnificantlyy strength hened fin nancial pe erformance e is prima arily attribu utable to the t $16.7 million un nderwriting result wh hich was u underpinn ned by a significant s t reduction n in net claims incu urred. The e net claims in ncurred is matterially influenced by the asssumptions use ed by the App pointed Actuary ry in calculating future claim ms liab bilities. Mediccal Indemnity has h a ‘long tail’ and is chara acterised by significant potential volatility oof a small num mber of large value claims. It iss for that reasson MIPSi has again adopte ed a higher lev vel of sufficiency when valui ng claims than is required by b AP PRA when ado opting the prud dential margin. These actua arial assumptio ons are detaile ed in note 3 too the accounts s. The total ne et claims incurred ffor 2011/12 wa as $5.9 million n after a $16 m million release e from prior year claims reseerves. The rele ease from prio or ar’s reserves rresulted from management finalising claim ms for less tha an was reserved. yea The e investment rresult of $9.7 million for the year reflects a another positive investmentt result flowingg from prudent investment of o me embers’ funds.. MIP PSi continues to focus on th he preservatio on of capital to o protect the in nterests of MIP PS members. This conside eration is parramount in settting and main ntaining our investment stra ategy, purchas sing reinsuranc ce coverage aand in maintain ning sound und derwriting and d pricing practiices. With net assets of $95 5 million, MIPS Si has a strong g balance sheeet and is supp ported by a we ell cap pitalised paren nt, MIPS. MIP PSi provides MIPS M memberss with excellen nt security. The e Australian P Prudential Reg gulation Authority (APRA) w will introduce th he revised prudential framew work for Life and a General Ins surers which b becomes effecctive from 1 Ja anuary 2013. M MIPSi has con ntinued to participate in the cconsultation process p and ha as pro ovided feedbacck to APRA diirectly and via a MIPSi memb bership of the Insurance Cou uncil of Austraalia. We e believe MIPS Si is well prepared for the in ntroduction of tthe new reporrting frameworrk which on cuurrent indicatio ons will furtherr stre engthen the already well ca apitalised insurrance industryy. Under the new n reporting framework MIIPSi is require ed to have in pla ace an Internal Capital Adeq quacy Assessm ment Pro ocess (ICAAP) from 1 Janua ary 2013. Ma anagement and the Board are a currently re efining ele ements of the IICAAP. MIPSii currently has sa solvency ratio off 3.58 and will continue, albe eit within e new framewo ork, to maintaiin an appropriate the solvency buffer a above the min nimum Prudential Capital Requirement (PC CR). The e Group Auditt Risk and Com mpliance Com mmittee cha aired by Norm man Newbon, and a the Group p Inv vestment Com mmittee chaired d by Kerry Rox xburgh, mo onitor performa ance in these areas of respo onsibility as delegated by the boards. Thanks T to both h mmittees for th he results ach hieved. com I th hank the MIPS Si Board, MIPS S Board, mana agement and d staff for their contributionss to another su uccessful yea ar for MIPSi.

Ba arry S Gilberrt Chairman MIPS Insurance Ptyy Ltd

MIPS Annual Report 2011/12

MIPS Managing Director and MIPS Insurance Chief Executives Officer's report I am pleased to report that the financial results for the MIPS Group to 30 June 2012 have further strengthened MIPS. They include: • • • •

$35 million increase in members’ surplus (net assets) to $185 million $68 million increase in total members’ assets to $395 million 5% increase in member numbers additional strengthening of MIPS Insurance solvency

The most significant factors contributing to the result were: •

• • •

Significantly better than expected claims expense. The better than anticipated claims experience of our members was seen particularly in relation to prior year claims where we were able to finalise a number of significant matters for much less than their reserved amount A better than budgeted investment result despite challenging and volatile investment conditions. The 2011/12 result continues MIPS track record of achieving a positive investment result each year Continuing growth in member numbers Sustained focus on containing the cost of operations.

MIPS exists to support its members and membership subscriptions are calculated from the ground up each year to ensure MIPS can continue to provide members with very high levels of security on an on-going stable and sustainable basis. Towards the end of the 2011/12 year MIPS considered the better than expected claims experience and anticipated increased levels of solvency, when setting MIPS 2012/13 membership subscription reference rates. Members will be aware that membership subscriptions are individually determined and reflect factors such as the exposure each member has to claims arising from their current and past practise including geographic locations of that practise. Reinsurance arrangements were further enhanced for 2011/12 and 2012/13. This further reduces the possible exposure of the MIPS Group to the effects of claims - especially infrequent but high value medical indemnity claims - and therefore decreases the potential for volatility in MIPS Group financial results. Through such mitigation MIPS is even better placed to provide high levels of financial security and stability for members. MIPS maintains a prudent claims reserving policy and has again chosen to reserve medical indemnity liabilities at a higher level of sufficiency than that required under the prudential standards of the Australian Prudential Regulation Authority. This decision by MIPS Insurance provides MIPS members with further confidence that their medical indemnity provider will be well capitalised over the long period required to finalise medical indemnity claims. MIPS exists to: • • • •

support and protect the character and interests of legally qualified health care practitioners and of persons legally entitled to practice medicine, surgery or a related health care discipline support and protect the character and interests of Members promote honourable and to discourage irregular practice consider, originate, promote and support, or oppose legislative or other measures affecting Members.

These objectives are documented in the MIPS Constitution and form the focus for what we do. During the year, in accordance with those Constitutional objectives, MIPS moved to protect members through decreasing the potential for adverse patient outcomes in respect of Naltrexone implants, non-TGA registered products and female genital surgery.

MIPS Annual Reportt 2011/12

MIP PS membersh hip is designed d to meet the needs of mem mbers. MIPS offers o a range of membershiip benefits suc ch as insurancce cov vers, risk educcation servicess, 24 hour medico legal asssistance (from expert clinicia an peers) as w well as a numb ber of other ben nefits. MIPS a also operates as a buying group g for mem mbers in respec ct of the medic cal indemnity,, practice entitty and persona al acc cident insuran nce master pollicies it purcha ases. Further d details of thes se and other membership m beenefits can be e found in the MIP PS Membersh hip Benefits bo ooklet includin ng product discclosure statem ments at mips.com.au. Gro owth Ov verall MIPS exxperienced an increase in to otal membersh hip (including students) s of ap pproximately 55.2% to bring total me embership num mbers as at 30 0 June 2012 to o over 34,000 . MIPS obligattions are to cu urrent memberrs. Therefore membership app plications are considered on n the basis of whether acce eptance will be enefit the mem mbership as a w at reason MIPS whole. For tha carrefully examines new memb ber application ns with a view that any new member shou uld bring no grreater risk exp posure than th he ave erage of curre ent MIPS mem mbers in the ap pplicants craft group. Representation and Advocacy PS continued its role of advvocacy in respect of matterss that affect me embers. Durin ng the year, M MIPS participatted in a numbe er MIP of working w partie es and committtees, including g: • • • •

Na ational E-Healtth Transition Authority A (NeH HTA) Op pen Disclosure e Advisory Gro oup Several Insurancce Council working parties i ncluding the Medical M Indem mnity Working Group and AP PRA liaison / AGIC working group g LA ational Injury In nsurance Sche eme discussio ons Na

MIP PS also contriibuted to a num mber of submissions, which h ensured thatt its views on matters m that m may affect mem mbers were hea ard. The mostt significant of the submissio ons during the e year were: • • • •

Wrritten and oral submissions to t the Senate Committee Review R of the Professional P S Services Revie ew (PSR) Scheme Re eview of the He ealth Services s (Conciliation and Review) Act Public Consultattion of the Med dical Board in respect of fun nding of extern nal doctors’ heealth programmes h Practitioner Regulation Ag gency (AHPRA A) in respect of o their consulltation on the definition d of Australian Health actice pra

MIP PS was also in nvolved in a number n of com mmunications w with governme ent in respect of the future oof Premium Su upport and Hig gh Cost Claims med dical indemnity schemes. Regulation PS manageme ent have been n involved in working w with MIP AP PRA at every sstage in the de evelopment of the revised pru udential framework for Life and a General In nsurers. The LAGIC reporting regime becom mes effective from 1 Januarry 201 13 and has the e potential to adversely affe ect costs throu ugh rev vised capital re equirements. We believe we w are well pre epared for the introduction of o the LAGIC refinements r an nd antticipate that th here will be minimal impact to t MIPS Ins surance capita al requirements on introduction. In summary, s MIP PS has continu ued to act in th he best interessts of its i members a and the 30 Jun ne 2012 MIPS Group resultss hav ve enhanced m materially the financial secu urity of MIPS a and furtther advanced d MIPS’ comm mitment to bein ng the preem minent “doctorss for doctors” medical m defen nce organisatio on in Australia. A

Drr. A Troy Bro owning Ma anaging Directtor and Chief Executive E Officer

MIPS An nnual Report 20 011/12

Govern G nance report Th he key gov vernance structures s within th he MIPS Group G are: •

MIPS Board

•

MIPS Insurance Board

•

udit, Risk and Comp pliance Co ommittee (GARCC) MIPS Group Au

The e MIPS and M MIPSi boards have h significan nt depth and b breadth of dire ector experience. This includdes medical, dental, d legal, acc counting, insurance and oth her financial se ector corporate e governance e, executive an nd Board expeertise and experience. The e MIPS and M MIPSi boards are a supported by the MIPS Group Audit, Risk R and Com mpliance Comm mittee (GARC CC) which con nsists of highlyy skilled and experienced e in ndependent no on-executive directors d from both boards. A sound s corpora ate governance e structure continues to pro otect members s’ interests thro ough risk mannagement and d compliance ma anagement fra ameworks. The ese governanc ce structures e ensure that th he business ad dequately add resses its com mpliance relate ed risk ks and meets appropriate prudential, statutory and othe er obligations and standards. Internal auddit and a MIPS S Group Inv vestment Com mmittee are parrt of the goverrnance structu ure. Ris sks confronting g the MIPS Grroup are regularly reviewed d by managem ment on an inherent and resiidual basis, an nd risk controls are e rated according to manage ement’s asses ssment of theiir effectiveness. Strategies are a developedd to manage riisks as app propriate. MIP PS Group Au udit, Risk and d Compliance Committee ((GARCC) The e MIPS Group p Audit, Risk and a Complianc ce Committee e (GARCC)’s primary p res sponsibility is rreviewing and monitoring th he MIPS Group ps Risk Management Strate egy and d Enterprise R Risk Managem ment process. GARCC is ma ade up of inde ependent direc ctors, and d is responsib ble, through ma anagement, fo or monitoring ccompliance with w the Boards s’ pollicies, as well as prudential and statutory requirements . GARCC repo orts to the Boa ards on;; the progress of the interna al audit programme; the riskk managementt system and adh herence to the e compliance plan p each qua arter, or more frequently as required. GA ARCC met six times through hout the year and a in carrying g out its duties s, monitored, rev viewed and ap pproved processes used to: •

• • • •

Chairm man GARCC

ide entify higher rissk areas within the MIPS G roup’s operatiions and verify y the integrity,, relevance an nd effectivenesss of tthe management of those riisks, including g the risks associated with:  invvestment  fina ancial systems s  riskk managemen nt systems  leg gal obligations enssure the integrity of all finan ncial and mana agement inforrmation upon which w the Boaards rely ma aintain an effecctive and effic cient control an nd risk manag gement environment enssure the MIPS S Group meets s the requirem ments of the Ap ppointed Auditor’s programm me and underrtakes app propriate actio ons in respons se to the Appo ointed Auditor’’s report enssure the MIPS S Group complies with the re elevant regula atory requirem ments.

The e members off the GARCC are a detailed in n the Director’ss Report.

Norm man Newbon

MIPS Annual Reportt 2011/12

Internal audit The e MIPS Group p Internal Auditor is an in-ho ouse appointm ment that utilises the service es of external pproviders of in nternal audit serrvices as and when required d. Internal Aud dit provides ind dependent an nd objective as ssurance and consulting services, design ned to add a value and d improve the efficiency and d effectivenesss of the MIPS Group’s opera ations. Internaal Audit’s objective is to dettermine that th he enterprise risk r managem ment frameworrk, control and d corporate governance proccesses are ad dequate and are fun nctioning as intended. Intern nal Audit provides assurance e to GARCC and a the Board ds that: • • • • • • • •

riskks are appropriately identifie ed and manag ged inte eraction with the t various governance grou s needed ups occurs as significant financcial, manageria al and operati ng information n is accurate, reliable and tiimely mployees’ actio ons are in com mpliance with p policies, stand dards, procedu ures, and appllicable laws an nd regulationss em ressources are accquired econo omically, used efficiently and d adequately protected p pro ogrammes, pla ans and objectives are achie eved qua ality and continuous improv vement are fosstered in the MIPS M Group’s control processs significant legisla ative or regula atory issues im mpacting the MIPS M Group arre recognised and addresse ed appropriate ely.

MIP PS Group Inv vestment Com mmittee (GIC)) The e MIPS Group p Investment Committee C (GIC) is responssible for review wing, guiding and a ma aking recomme endations to th he Boards reg garding investm ment matters. The GIC is a Board and d managemen nt committee and a comprises s as a minimu m two directors, the Managing er. Dirrector/Chief Exxecutive Office er and Chief Financial F Office The e day to day m maintenance of o the investme ent portfolio iss undertaken by b the CFO an nd the Fin nance Division n in conjunction with the MIP PS Group app pointed lnvestm ment Managerr. The e GIC met formally six times during the year however, matters were routinely and reg gularly commu unicated and discussed d usin ng telephone a and / or email outside of tho ose me eetings.

Kerrry Roxburgh Convvenor and mem mber of the Gro oup Inveestment Committee

In carrying c out itss duties the GIC: G • • • • • • • • • • • •

revviews and reco ommends to th he Boards anyy changes to the t investment objectives, ppolicies and sttrategic asset allo ocation rangess and benchm marks revviews and reco ommends to th he Boards anyy additional investment secttors or types oof securities revviews the apprropriateness of o the mandate e of the extern nal investmentt manager revviews the pastt 12 months’ performance off both internall and external investment m management processes against rele evant benchm marks revviews and considers the tactical asset allo ocation and re ecommends to o the Boards aany changes reccommends to the t Boards the e appointmen t or terminatio on of external investment maanagers me eets formally with w the extern nal investmentt manager revviews the effecctiveness of th he investment risk managem ment procedurres con nsiders whether there should be any varia ations to the approved a asse et allocation raanges con nsiders what systems s have been formula ated by the MIP PS Group to monitor m compliiance with legislative, reg gulatory and in nternal investm ment policies con nsiders what measures m are being taken b by the MIPS Group G to ensurre assets are m managed in ac ccordance witth invvestment mand dates and ben nchmarks app roved by the Boards B con nsiders what internal and ex xternal audit cchecks were made m on the investment poli cies and procedures of the MIP PS Group and d their findings s over the passt 12 months.

ainty, the GIC During the period d of continued d significant fin nancial uncerta C continues to closely monitoor the investm ment market. As A a res sult, MIPS hass maintained a positive inves stment return throughout th his period. The e GIC will conntinue its ongo oing review of the t MIP PS Group’s in nvestments in order to best manage m mem bers’ funds into the future.

MIPS Annual Report 2011/12

Management of MIPS In order to safeguard the MIPS Group and to provide assurance of our compliance with the large number and wide range of regulatory and legal requirements, MIPS has a number of internal committees which oversee its daily operations and ensure transparency and efficiency. Membership Assessment, Acceptance and Advisory Committee The MIPS Group Membership Assessment, Acceptance and Advisory Committee (‘Membership Committee’) considers membership matters within the authority delegated by the MIPS Board and the terms of the MIPS Constitution. The Membership Committee consists of the Chairman Claims Senior Management Group, MIPS Chairman / MIPSi Deputy Chairman, MIPS Managing Director / MIPSi CEO, MIPS Chief Operating Officer, MIPS Head of Claims, and MIPS Manager Risk Education. Other attendees may include MIPS Member Services Officers, MIPS Directors and invited attendees who may be required to provide the Membership Committee with technical assistance. The Membership Committee operates on a continuous ‘as required’ daily basis. Frequency is however determined by the nature and type of applications. A formal meeting of the full Membership Committee is usually held each week. At a formal weekly meeting, the Membership Committee reviews exceptional or complex matters. Matters for consideration by the Committee may also include new membership categories During the year the Membership Committee formally considered over nine hundred matters. Some of the issues considered related to: • • •

collaborative arrangements telehealth new procedures and treatments.

Those issues are important to ensure that members and MIPS member’s assets are protected (by ensuring patients are protected from potential avoidable adverse outcomes) and MIPS continues to act in accordance with the MIPS constitution ‘to promote honourable and discourage irregular practice’. Regular matters considered by the Membership Committee include: •

• • •

large numbers of members seeking extension and confirmation of their benefits of membership to undertake: o provision of gratuitous services for overseas volunteer work o therapeutic trials and clinical studies members seeking confirmation that they hold appropriate qualifications, training and experience for intended practice membership category enquiries and clarifications including practising, Extended Reporting Period (ERP) and RunOff Cover Scheme (ROCS) categories queries regarding practice entity structures

The Membership Committee also considers other matters referred by Member Services Officers for consideration such as applications by members to vary their retroactive date and membership category selection. Each year the Claims Division coordinates data provision prior to renewal through the MIPS Membership Committee to review all MIPS members’ claim and incident notifications. MIPS members identified by that process who display abnormal practice profiles may be; • • •

counselled and / or advised of changes to their membership terms and conditions; and / or have practice restrictions imposed; and /or be advised that they will not be provided an invitation to apply for membership renewal and / or advised that their application for membership renewal will not be accepted.

MIPS Annual Reportt 2011/12

Responsible Ma anagers' Com mmittee The e MIPS Group p holds two Au ustralian Finan ncial Service L Licences (AFS SL’s) – one forr MIPS and annother for MIP PS Insurance. AFS licensees m must have and maintain orga anisational co mpetence to provide p the financial servicees covered by their licenses. MIP PS’ Responsib ble Managers ensure that th he MIPS Grou up meets these organisation nal competencce obligations by: • • •

beiing directly ressponsible for significant s dayy to day decisiions about the e ongoing provvision of financ cial services havving the appro opriate knowle edge and skillss for all MIPS Group financial services annd products, and ind dividually demo onstrating the required know wledge and sk kills

Responsible Managers Comm mittee meetings are held mo onthly and any y matters identtified at meetinngs of the Res sponsible anagers Comm mittee which may m have a ma aterial impact on MIPS bein ng able to main ntain its organnisational competence or an ny Ma oth her material matter will be re eported to the MIPS Group A Audit Risk and d Compliance Committee. Ov ver the 2011/12 2 membership p year, the Responsible Ma nagers Comm mittee: • • • •

enssured that the e MIPS Group continuously ccomplied with h financial serv vice provision requirements to improve serrvice provision n to members con ntinued review w and monitoriing of the exte ensive ongoing g AFSL educa ation program and certification required off all sta aff including co ontracted risk management education pre esenters revviewed and im mproved AFSL compliance ccertification an nd assurance procedures p annd monitoring and supervisio on pro ocedures docu uments parrticipated in re elevant industrry conferencess

MIPS Annual Report 2011/12

Member benefits As a member organisation, MIPS is committed to providing a range of benefits to members to meet their needs in accordance with the MIPS constitution. MIPS Protections

√

MIPS Members’ Medical Indemnity Insurance Policy

√

MIPS Members’ Practice Entity Policy*

√

MIPS Members’ Group Personal Accident Policy*

√

Medico-legal advice (24/7 advice helpline)

√

Risk management workshops & advice

√

Medico-legal seminars and training

√

Online risk management modules

√

Range of Club MIPS member benefits

√

MIPS review and MIPS student review

√

* These membership benefits do not apply to Student Membership Categories

Medico-legal advice and claims assistance One of the many facets of MIPS that makes MIPS different is that all MIPS medico-legal advisors and claims file managers are experienced, senior, medical or dental practitioners. All MIPS medico-legal advisors and claims file managers have substantial experience in clinical practice and this expertise is brought to the fore in the advice and assistance they provide to members in need. Their professional specialties include: general practice, obstetrics / gynaecology, anaesthetics, orthopaedic surgery, general surgery, internal medicine, pain management, general dentistry, endodontics and prosthodontics. During the 2011/12 membership year, MIPS received just under 4,000 new contacts from members seeking advice, solace, assistance and support. Approximately 85% of these contacts related to non-liability matters such as advice on matters or incidents deemed not likely to give rise to a claim. Claims trends remain unchanged. The most significant claims by patients still relate to a failure and/or delay in diagnosis (principally breast and skin cancer) and delays in referral for investigation of suspicious bowel symptomatology. What makes the latter difficult to defend is if there is a failure to undertake a basic rectal examination at the time of presentation and delay or lack of priority in the referral for subsequent specialist investigation. The extent of access to MIPS comprehensive and flexible membership benefits is determined by the membership category selected by a member. MIPS continues to expand the benefits it provides members in anticipation of and/or response to developing needs while keeping associated paperwork to a necessary minimum. An on-going adverse trend is the number of claims arising from patients seen with presenting symptoms of cardiac origin where some basic diagnostic investigations are performed but a diagnosis is not made. Often in these cases, the ECG is unremarkable and troponin is in the normal range giving practitioners false confidence that other differential diagnoses should be explored. Unfortunately, in many cases the patient subsequently dies within days or weeks from ischaemic heart failure.

MIPS Annual Reportt 2011/12

Cases of signifiicance MIP PS continues to take a veryy proactive stand on behalf o of members. Where W MIPS is s confident thaat the membe er’s clinical con nduct is defen nsible and welll supported by y contemporan neous notes and a our lawyerrs agree that itt does not con nstitute medica al neg gligence, MIPS S will prefer to o resist the cla aim and not m erely settle the case with claimant only foor commercial reasons. We bellieve that this not only appro opriately prote ects a memberr’s reputation but also sends a strong meessage that pro otects other me embers from illl-considered or o spurious cla aims over time e. During the 2011//12 financial year, y MIPS ran n four landmarrk cases to verdict in NSW and a Victoria. MIPS won each case, each h nt as an outcome. Each casse was widely y acknowledge ed within the m medical and ge eneral media, with a verdict forr the defendan pecially the vin ndication of th he MIPS memb ber’s clinical p performance. esp MIP PS is also pro oactive on the recovery of co osts. It is expe ensive to run a matter to tria al and where a claimant has s been offered mu ultiple opportun nities to withdraw the case during d the yea ars of preparation for trial bu ut neverthelesss persists, MIPS will tirelessly purrsue them for our costs. A very v large num mber of files arre finalised by offering the p patient the opp portunity to “walk away” withh each party bearing b their ow wn leg gal costs. Whilst these resolutions may so ometimes con nstitute a pyrrh hic victory, it brings the mattter to closure, with no com mpensation be eing paid and the member’s s position (and d professional integrity) remaining protectted. Assistance with h claims The e philosophy o of MIPS in rela ation to claims s acceptance is simple. If th he claim has le egal merit (i.e.. the patient will w establish liab bility and caussation), it is in everyone’s intterests to sett le the matter equitably e and promptly. If it has no merit we w will not setttle the e claim and will pursue any costs c incurred d without fear o or favour. The ere is little doubt that tort refform has impa acted upon the e freq quency of claims and has also a removed a lot of the min nor claims. MIP PS claims exp perience howe ever, has demonstrated thatt significant medico-legal resources have been diverted d into defendin ng me embers in relattion to disciplinary matters (including ( man ndatory notific cations) and de ealing with othher matters inv volving reg gulators and/or related to billling related claims (e.g. Me edicare Australia). Pattient complain nts to the Austtralian Health Practitioners R Regulation Ag gency and Hea alth Complaintts bodies seem m to be inc creasing and w whilst these ca an very often simply s reflect a perception th hat something g was not rightt, there does seem s to be a tren nd that better communicatio on at the pointt of consultatio on could avertt much of this re-work and m minimise the adverse a impacct on the scarcest o of members’ resources – tim me.

Developm ment table of n notifications by numbeer (as at 30‐06‐‐13) 4500

4000

3500

3000

2500

Advisory Incidents Not Likkely Incidents Likely

2000

Claims 1500

1000

500

0 2003‐04

2004‐05

2005‐0 06

2007‐07

2007‐08

2008‐09 9

2009‐10

2010‐11

2011‐12

MIPS An nnual Report 20 011/12

Inv vestigation an nd inquiry assistance On ne of the key m membership be enefits access sed by membe ers relates to assistance a forr matters invollving potential conflict of inte erests. This m may be experie enced in coron nial inquests w where there ca an be dispute between b respeective clinician ns (or even wiith the e employing ho ospital) about the patient’s care c or for exa ample, where the family of the deceased may have instigated civil litig gation or an AHPRA compla aint. Oth her areas whe ere MIPS provvides support and a assistance e can be dispu utes in the wo orkplace or witth employers, collegiate con nflicts and matters relating to t registration and qualificattions. Acceptin ng that often very v little can bbe done in res spect of the req quirements of registration bo odies, MIPS experience e and d knowledge of o the system and having soomeone with those skills to pro ovide counsel and direction can often mak ke a significan nt difference fo or members.

MIPS Annual Reportt 2011/12

Membe M er risk educa ation MIIPS membe ers are entitled to the e importantt membership benefitt of membeer risk educ cation. Risk ed ducation prrovides me embers with h contemp porary risk manageme ent educatiion/medico o legal ad dvice, as we ell as valua able Contin nuing Profe essional Ed ducation (C CPD pointss) and the potential p fo or me ember collegiate inte eraction and d support. Imp portantly, the MIPS Constitu utional object ‘to promote ho onourable and d to discourage irregular praactice’ is at the e forefront of our o risk k education sttrategies for members. m Mem mber risk educcation is design ned to help members betterr manage risk in their day-to oday y working life, to help preve ent adverse ou utcomes to pattients, or in the e event adverse outcomes tto patients do occur, help me embers mitigatte the outcomes and to assist in the defen nce of any alle egations of sub optimal heaalthcare. Any expenditure e off me embership fund ds on risk edu ucation factors s in these impo ortant conside erations. During 2011/12 M MIPS provided d 42 member risk education n workshops throughout Australia in the A Autumn and Spring S program ms. The ese workshop ps were well atttended, with overwhelming o gly positive fee edback provide ed by memberrs through wo orkshop eva aluations. MIP PS continues to develop relevant and con ntemporary in house conten nt for risk educcation worksho ops whilst also o sou urcing the servvices of established expert service provid ders of risk education for health professioonals. Risk edu ucation workshops desig gned specifica ally for the nee eds of our denttal members were w also intro oduced and w were well attended and well rec ceived by denttal members. Additionally, mem mbers have acccess to on-lin ne risk educattion modules. During 2011/1 12, the modulee ‘Dealing with h Difficult Pattients’ was added. This mod dule is a fusion of an edited d filmed workshop including contributions by members, as well as inte eractive opporrtunities for pa articipating me embers. A furth her on-line mo odule ‘Conversations at the end of Life’ fo ocussing on stra ategies to dea al with managing terminally ill patients hass been develo oped and will be b provided too members in the t near future e. In all a there will be e five on-line risk r education n modules ava ailable to mem mbers. Each ye ear several hu ndred membe ers complete an a on--line module. All MIPS risk edu ucation workshops and on-line modules p provide an opp portunity for members m to gaain valuable CPD points whiich n a mandattory registratio on standard for the Medical and Dental Bo oards of Austrralia. Member attendance at risk educatio on is now workshops and/o or the complettion of any on--line module a also enables MIPS M medical members to m meet the mand datory quirement under the Premiu um Support Sc cheme (PSS) tto complete risk manageme ent in the yearr the subsidy is s provided. req Me ember risk edu ucation is also provided in th he quarterly ne ewsletter (MIP PS Review articles and casee studies) and d in website ne ews upd dates or directt bulletins to members m / gro oups of membe ers as required and or as ap ppropriate. MIP PS commitme ent to provide risk r education n to Internation nal Medical Grraduates (IMG G) continues inn conjunction with w org ganisations such as the Victtorian Medical Post Graduatte Foundation n and directly to t IMG groupss within genera al practice div visions. In currrent development is a tailore ed education p program for IM MG’s focussing g on workplacce communication and Engliish lan nguage skills a and reduction of medico lega al risk. This in nitiative will soon be trialled. MIP PS medico-leg gal presenterss also delivere ed risk educati on presentatio ons at a numb ber of hospitalss throughout Australia A (as part p of the t hospital ed ducation progrrams principally aimed at ju unior doctors), at various universities and conferences and a to variouss oth her stakeholde ers. The provission of such va aluable educa ation demonstrrates MIPS co ommitment to members by providing p rele evant risk edu ucation and a genuine g willing gness to passs on our consid derable knowledge and expperience to benefit the widerr com mmunity. A number n of new w innovative risk education activities a are i n developmen nt and will further enhance tthe benefits off MIPS me embership.

Medical Indemnity Protection Society Ltd and its subsidiaries Directors’ report Your directors present their report on the consolidated entity (“Group”) consisting of Medical Indemnity Protection Society Ltd (“Society”) and its subsidiaries at the end of, or during, the year ended 30 June 2012. Directors The following persons were directors of Medical Indemnity Protection Society Ltd during the whole of the financial year and up to the date of this report unless otherwise noted: S Bitter A T Browning, Managing Director A A Fraser L Rowe K C D Roxburgh C J Steadman B E Taylor R W L Turner, Chairman Meetings of Directors The number of meetings of the Society’s directors held during the year ended 30 June 2012, and the number attended by each director during the time the director held office during the year ended 30 June 2012 are disclosed below: Board meetings held during the year

Board meetings attended

S Bitter

A T Browning

A A Fraser

L Rowe

K C D Roxburgh

C J Steadman

B E Taylor

R W L Turner, Chairman

Meetings of the Group Audit, Risk and Compliance Committee (“GARCC”) The number of meetings of the GARCC held during the year ended 30 June 2012, and the number attended by each member of the GARCC during the time the member of the GARCC held office during the year ended 30 June 2012 are disclosed below: GARCC meetings held during the year

GARCC meetings attended

S Bitter

B S Gilbert

A D Mason (appointed on 08/02/2012)

N W Newbon , Chairman

K C D Roxburgh

B S Gilbert, A D Mason and N W Newbon are not directors of the Society but are directors of a wholly owned subsidiary, MIPS Insurance Pty Ltd.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries ont’d) Diirectors’ rreport (co Me eeting of the G Group Investtment Commiittee (“GIC”) The e number of m meetings of the e GIC held during the year e ended 30 June 2012, and th he number atttended by eac ch member of the GIC C during the tiime the memb ber of the GIC held office du uring the year ended 30 Jun ne 2012 are di sclosed below w. The GIC me eets formally a as and when re equired howev ver matters we ere routinely and a regularly communicated c d and discussed using ele ectronic meanss. GIC meetin ngs held during th he year

GIC mee etings attended

R J Miles

K C D Roxburgh h, Convenor

C J Steadman

B E Taylor

A T Browning 1

R J Miles is the e Chief Financcial Officer and d Risk Manage ement Officer and is not a director d of the Society.

Infformation on Directors

Dirrector

Qualiifications

Spec cial Responsiibilities and E Experience

S Bitter B

BEc (Hons), ( Dip Ap pp Fin&Inv, FI CA, MAIC CD

Direc ctor, IGIPT Pty y Ltd Direc ctor, Australia Post Direc ctor, ISPT Pty Ltd

A T Browning

MBBS S, MBA, Grad Dip Ins ANZI IF (Fello ow) CIP, AFAIM, GAICD

Mana aging Directorr of the Societyy Chieff Executive Offficer, MIPS Innsurance Pty Ltd L Mem mber of the Gro oup Investmennt Committee Mem mber of various s Claims and M Membership committees c

A A Fraser

BJuriss, LLB

Direc ctor, MIPS Holldings Pty Ltd

L Rowe R

AM, MBBS, M MD, FR RACGP, FAIC CD

Direc ctor, Australian n Health Manaagement Grou up Pty Ltd Direc ctor, Medibank k Private Ltd Direc ctor, I-Med Australia Pty Ltdd Direc ctor, MIPS Insurance Pty Ltdd

K C D Roxburgh h

BCOM M, MBA, MES SAA

Mem mber Group Audit Risk & Com mpliance Com mmittee Conv venor and mem mber of the Grroup Investme ent Committee e Direc ctor, MIPS Insurance Pty Ltdd Direc ctor, Charter Hall H Funds Maanagement Ltd d Direc ctor, Charter Hall H Ltd Direc ctor, Ramsay Health H Care LLtd

C J Steadman

MBBS S, FRACP, MD D, FAICD

Mem mber of the Gro oup Investmennt Committee Proviides specialistt claims and m medical indemnity risk mana agement advic ce on a sessioonal basis Direc ctor, Queensla and Doctors’ M Mutual Pty Ltd

B E Taylor

MDScc, FRACDS, FADI, F FICD, F FPFA

Mem mber of the Gro oup Investmennt Committee Direc ctor, MIPS Holldings Pty Ltd Direc ctor, MIPS Insurance Pty Ltdd Direc ctor, Victorian Medical Insurrance Agency Pty Ltd

Medical Indemnity Protection Society Ltd and its subsidiaries Directors’ report (cont’d) Director

Qualifications

Special Responsibilities and Experience

R W L Turner Chairman

MBBS, LLB, FRCS, FRACS, FACLM, FAICD

Chairman of the Board Provides specialist claims advice on a sessional basis Member of various Claims and Membership Committees Director, MIPS Holdings Pty Ltd Director, MIPS Insurance Pty Ltd Director, Queensland Doctors Mutual Pty Ltd Director, Medical Protection Society of Tasmania, Inc.

Company Secretary

Qualifications

Special Responsibilities and Experience

W F Berryman

FANZIIF, GRAD DIP BUS (INS), ACIS

Company Secretary, Medical Indemnity Protection Society Ltd Company Secretary, MIPS Insurance Pty Ltd Company Secretary, Queensland Doctors’ Mutual Pty Ltd Compliance Officer

Principal Activities The Group’s business is to protect, support and safeguard the character and interests of medical practitioners and to provide medical membership benefits including indemnity insurance to members. Review of operations and results Group

Total comprehensive income

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

34,587

17,681

20,353

13,902

Basis of preparation The financial report is a general purpose financial report which has been prepared in accordance with the Australian Accounting Standards, Corporations Act 2001, including the application of ASIC Class Order 10/654 allowing the disclosure of Parent entity financial statements due to Australian Financial Services Licensing obligations. Dividends The Society’s constitution prohibits the payment of dividends to professional members or shareholders. No dividend was therefore paid or proposed for the year ended 30 June 2012 (2011: $Nil). Significant changes in state of affairs There have been no significant changes in the state of affairs of the Group during the year ended 30 June 2012. Likely developments and expected results of operations Information on likely developments in the operations of the Group and the expected results of operations have not been included in this report because the directors believe it would be likely to result in unreasonable prejudice to the Group. Significant events after balance date No matters or circumstances have arisen since 30 June 2012 that have significantly affected, or may significantly affect: (a) the Group’s operations in future years, or (b) the results of those operations in future years, or (c) the Group’s state of affairs in future financial years.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries ont’d) Diirectors’ rreport (co Ins surance of offficers During the financcial year, the Society S paid a premium to in nsure the dire ectors and offic cers of the Soociety. In acco ordance with d of th he total amoun nt of premium payable unde er the insurancce contract is prohibited by a norrmal commerccial practice, disclosure con nfidentiality cla ause in the co ontract. No ins surance coverr has been pro ovided by the Society S for thee benefit of the e auditors. The e liabilities inssured include damages d and legal costs in curred in defe ending a civil action a broughtt against an insured directorr. Cover is also pro ovided for lega al costs incurre ed in the succcessful defenc ce of criminal proceedings. p The Society's s constitution sta ates that the Society may pa ay premiums to o insure office ers against liab bilities incurred in their capaacity as officerrs. The liabilitties inc clude the costss of defending civil or crimin nal proceeding gs regardless of o their outcom me. Environmental Regulation e Group has a assessed whe ether there are e any particula ar or significan nt environmenttal regulationss which apply to t it and has The dettermined that there are none. Ro ounding of Am mounts The e Group is of a kind referred d to in Class Order O 98/0100 0, issued by th he Australian Securities S & Innvestments Co ommission, rela ating to the “ro ounding off” off amounts in the directors’ rreport. Amoun nts in the directors’ report haave been roun nded off in acc cordance with that Class Orrder to the nea arest thousand d dollars, or in n certain cases s, to the neareest dollar. Auditor Ern nst & Young ccontinues in off ffice in accorda ance with Secction 327 of the Corporations Act 2001. The e Auditors’ Ind dependence Declaration D is set s out on pag ge 20. Thiis report is ma ade in accorda ance with a res solution of the e directors.

R W L Turner Dirrector

A T Browning Ma anaging Directtor

Me elbourne 24 October 2012 2

Medical In ndemnity y Protecttion Sociiety Ltd and its subsidiarries Au uditors’ in ndepende ence dec claration

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries e income e Sttatement of comprrehensive For the year end ded 30 June 2012 Group G

Society

Notes

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

Op perating incom me

61,216

57,1667

67,3 382

60,476

Reinsurance and d other recove eries revenue

6,06 62

14,7887

Inv vestment resullt

14,75 55

14,9778

5,2 229

3,757

82,03 33

86,9332

72,6 611

64,233

(12,055 5)

(46,8556)

(2,927 7)

(2,8773)

(40,82 25)

(39,6 669)

(13,141 1)

(12,8000)

(13,22 28)

(12,8 867)

(13,480 0)

(5,71 3)

2,65 56

2,1007

2,5 502

1,916

(1,769 9)

(1,8449)

(40,716 6)

(67,9884)

(51,55 51)

620) (50,6

41,317

18,9448

21,0 060

13,613

(6,243 3)

(1,6997)

(22 20)

(1 141)

35,07 74

17,2551

20,8 840

13,472

(696 6)

6114

(69 96)

614

20 09

(1884)

209 2

(1 184)

(487 7)

4330

(48 87)

430

34,58 87

17,6881

20,3 353

13,902

Total income Cla aims expense

Ma aster policy exxpenses Oth her operating expenses

Ou utwards reinsurance premium m expense Ind demnification b benefit/(expen nses)

Ins surance levy Total expenses Pro ofit before inco ome tax Inc come tax (expe ense)/benefit Pro ofit for the ye ear Net fair value ga ains on availab ble for sale fina ancial assets Inc come tax on ite ems of other comprehensive c e income Oth her comprehensive income,, net of tax Total comprehe ensive income for the year

The e above State ement of comp prehensive inc come should b be read in conjjunction with the t accompannying notes.

Medical Indemnity Protection Society Ltd and its subsidiaries Statement of financial position As at 30 June 2012 Group

Society

Notes

2012 $’000

2011 $’000

2012 $’000

2011 $’000

Cash and cash equivalents

51,552

34,992

37,660

15,074

Receivables

23,455

7,675

29,900

8,819

Investments

192,243

180,222

54,749

55,555

Reinsurance and other recoveries receivable

6,249

8,827

2,153

Other assets

26,974

3,912

32,846

10,540

300,473

235,628

155,164

92,141

Current assets

Total current assets Non-current assets Investments

56,867

56,512

17,988

15,774

Reinsurance and other recoveries receivable

35,924

32,887

2,473

3,516

Plant and equipment

539

691

465

588

Investments in subsidiaries

6,508

Deferred tax asset

1,674

1,326

95,004

91,416

27,434

26,386

395,477

327,044

182,598

118,527

31,178

5,356

36,808

2,937

4,008

291

Total non-current assets Total assets Current liabilities Payables

Current tax liabilities Outstanding claims liability

18,726

17,910

Other liabilities

50,153

34,314

50,153

34,314

Provisions

677

2,590

677

2,590

104,742

60,461

87,638

39,841

Total current liabilities Non-current liabilities Outstanding claims liability

95,632

102,365

Provisions

9,747

13,449

3,244

7,155

Deferred tax liabilities

385

553

Total non-current liabilities

105,379

115,814

3,629

7,708

Total liabilities

210,121

176,275

91,267

47,549

Net assets

185,356

150,769

91,331

70,978

100

Equity Share capital Investment revaluation reserve

1,151

1,638

1,151

1,638

Retained profits

184,105

149,031

90,080

69,240

Total equity

185,356

150,769

91,331

70,978

The above Statement of financial position should be read in conjunction with the accompanying notes.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries ges in equ uity Sttatement of chang As at 30 June 2 2012 Share Capital

Retained Earnings

To otal

$’000

Investment Revaluation R Reserve $’000

$’000

As at 1 July 2010 0

100

1,208

55,768

57,076

ofit for the yea ar Pro

13,472

Oth her comprehensive income

430

Tottal comprehen nsive income for f the year

430

13,472

13,902

100

1,638

69,240

70,978

ofit for the yea ar Pro

20,840

Oth her comprehensive income

(487)

(4 487)

Tottal comprehen nsive income for f the year

(487)

20,840

20,353

100

1,151

90,080

91,331

As at 1 July 2010 0

100

1,208

131,78 80

133,088

ofit for the yea ar Pro

17,25 51

17,251

Oth her comprehensive income

430

Tottal comprehen nsive income for f the year

430

17,25 51

17,681

100

1,638

149,03 31

150,769

ofit for the yea ar Pro

35,074

Oth her comprehensive income

(487)

(4 487)

Tottal comprehen nsive income for f the year

(487)

35,074

34,587

100

1,151

184,10 05

185,356

Society

At 30 June 2011

At 30 June 2012 2

Gro oup

At 30 June 2011

At 30 June 2012 2

The e above State ements of chan nges in equity y should be rea ad in conjuncttion with the accompanying notes.

Medical Indemnity Protection Society Ltd and its subsidiaries Statement of cash flows As at 30 June 2012 Group

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

Receipts from members and other income received

55,966

56,791

58,235

59,065

Outwards reinsurance premium

(9,307)

(5,713)

(31,329)

(30,328)

(15,688)

(18,774)

2,696

3,501

Indemnification costs paid

(1,214)

(6,041)

(1,214)

(6,041)

ROCS levy

(1,781)

(3,562)

2,417

2,269

824

771

Interest received

14,669

11,330

4,581

2,803

Other expenses paid

(9,774)

(14,386)

(10,874)

(10,795)

Other revenue received

(3,821)

(473)

4,831

3,673

Income taxes paid

(2,665)

(2,496)

(179)

(203)

31,498

22,446

24,875

18,945

(69)

(133)

(68)

(31)

218,457

221,947

64,461

52,176

(233,326)

(273,296)

(66,682)

(80,824)

(14,938)

(51,482)

(2,289)

(28,679)

Net (decrease) / increase in cash and cash equivalents

16,560

(29,036)

22,586

(9,734)

Cash and cash equivalents at the beginning of period

34,992

64,028

15,074

24,808

51,552

34,992

37,660

15,074

Notes Cash flows from operating activities

Master policy costs paid Claims paid Non-reinsurance claims recoveries

Dividends received

Net cash used in operating activities

Cash flows from investing activities Purchase of plant and equipment Proceeds from investments Payments for investments Net cash used in investing activities

Cash and cash equivalents at the end of period

The above Statement of cash flows should be read in conjunction with the accompanying notes.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report No For the year end ded 30 June 2012 No ote 1 Summa ary of signific cant accounting policies The e principal acccounting policies adopted in n the preparatiion of the financial report arre set out beloow. These policies have bee en con nsistently applied to all the years y presente ed, unless oth herwise stated d. The financia al report includdes separate financial f sta atements for M Medical Indemn nity Protection n Society Limitted as an indiv vidual entity (tthe “Society”) and the conso olidated entityy con nsisting of Medical Indemnitty Protection Society S Limite ed and its subs sidiaries (the “Group”). The e financial rep port of the Socciety and the Group G for the yyear ended 30 0 June 2012 was w authorisedd for issue in accordance a wiith a re esolution of th he directors on n 24 October 2012. 2 (a) Basis of prep paration Thiis general purrpose financiall report has be een prepared in accordance e with the requ uirements of thhe Corporations Act 2001, Australian Accou unting Standarrds and other authoritative p pronouncements of the Aus stralian Accounnting Standards Board, inc cluding the app plication of AS SIC Class Orde er 10/654 allo owing the disclosure of Pare ent entity finanncial statements due to Australian Financial Services Licensing L obligations. The e financial rep port complies with w Australian n Accounting S Standards and d International Financial Reeporting Stand dards (IFRS) as a issued by the Intternational Acccounting Standards Board. Thiis financial rep port is prepare ed on a historical cost basiss except for tho ose financial assets a and finaancial liabilitie es that have be een me easured at fairr value, as desscribed in acco ounting policie es below. The e financial rep port is presented in Australia an dollars, wh ich is the Grou up’s functiona al and presentaational currency. (b) New Accountting Standardss. Ad doption of new w accounting sttandards The e Group has a adopted AASB B 124 (revised d) Related Parrty Disclosures s (December 2009) 2 it simpliffies the definittion of a relate ed parrty, clarifying its intended meaning and eliminating inco onsistencies frrom the definittion; AASB 20009-12 Amend dments to Australian Accou unting Standarrds [AASBs 5,, 8, 108, 110, 112, 119, 133 3, 137, 139, 10 023 & 1031 annd Interpretations 2, 4, 16, 103 39 & 1052]; AA ASB 2010-4 Amendments A to t Australian A Accounting Sta andards arisin ng from the Annnual Improve ements Projectt [AA ASB 1, AASB 7, AASB 101,, AASB 134 an nd Interpretati on 13]; AASB B 2010-5 Amen ndments to Auustralian Acco ounting Standa ards [AA ASB 1, 3, 4, 5,, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139 9, 140, 1023 & 1038 and Innterpretations 112, 115, 127 7, 132 2 & 1042]; AA ASB 1054 Austtralian Additional Disclosure es that are add ditional to IFR RSs and AASB B 2010-6 Amendments to Australian Accou unting Standarrds – Disclosu ure on Transfe er of Financial Assets [AASB B 1 and 7] The e adoption of this standard has only affec cted disclosure es in these fin nancial statements. There haas been no efffect on profit and a loss or the financcial position off the Group. Australian Accou unting Standarrds issued butt not yet effecttive e Group has n not applied any Australian Accounting A Sta andards that have h been issu ued as at balaance date and applicable to the The Gro oup but are no ot yet operativve for the year ended 30 Jun ne 2012 (“the inoperative standards”). All Australian Acccounting Stan ndards other th han the inoperrative standarrds, that have been issued aas at balance date but are not n ed 30 June 20 012, are consid dered to be no ot applicable to the Group. yett operative for the year ende The e impact of the e inoperative standards has s been assesssed and the im mpact has been identified ass not being ma aterial. The Gro oup only inten nds to adopt th he inoperative standards at the date at wh hich their adop ption becomess mandatory.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 The Group’s assessment of the impact of these new standards and interpretations is set out below: Reference

Title

Summary

Application date of standard*

Impact on group financial report

Application date for Group

AASB

Financial Instruments

AASB 9 includes requirements for the classification and measurement of financial assets. It was further amended by AASB20107 to reflect amendments to the accounting for financial liabilities.

1 January 2013

The Group has not adopted the standard early. Application of the standard will not affect any of the amounts recognised in the financial statements, but may impact the amount of information disclosed.

1 July 2013

These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139. The main changes are described below. 1.

Financial assets that are debt instruments will be classified based on (1) the objective of the entity’s business model for managing the financial assets; (2) the characteristics of the contractual cash flows. Allows an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument. Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases. Where the fair value option is used for financial liabilities the change in fair value is to be accounted for as follows:  The change attributable to changes in credit risk are presented in other comprehensive income (OCI)  The remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss.

Consequential amendments were also made to other standards as a result of AASB 9, introduced by AASB 2009-11 and superseded by AASB 2010-7 and 2010-10.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 Reference

Tittle

Summary

Applica ation date of standarrd*

Impaact on group finan ncial report

Application date for Group

AAS SB

Co onsolidated nancial Fin Sta atements

AASB 10 esta ablishes a new control model th hat applies to all entities. It repla aces parts of onsolidated and d Separate AASB 127 Co Financial Stattements dealing g with the accounting fo or consolidated ffinancial statements an nd UIG-112 Con nsolidation – Special Purpo ose Entities.

1 Januarry 2013

The G Group has not adopteed the standard d early. Application of the staandard will not affect any of the amounnts recognised in the finnancial statem ments, but may impacct the amount off inform mation disclosed d.

1 July 2013

The new conttrol model broad dens the situatio ons when an entitty is consideredd to be controlled d by another en ntity and include es new guidance e for applying th he model to spe ecific situations,, including whe en acting as a m manager may giv ve control, the im mpact of potenti al voting rights and when hollding less than a majority voting g rights may giv ve control. Consequentia al amendments were also made to other stand dards via AASB 2011-7. AAS SB 12

AAS SB 13

Dissclosure of Inte erests in Oth her Entities

AASB 12 includes all disclossures relating to an entity’s interests in subsidiarries, joint arrangements s, associates an nd structures entities. New disclosures havve been bout the judgem ments made by introduced ab management to determine w whether control o require summa arised informatio on exists, and to about joint arrangements, asssociates and diaries with non nstructured entities and subsid controlling intterests.

1 Januarry 2013

1 July 2013

Faiir Value Me easurement

AASB 13 esta ablishes a single e source of guidance for determining d the e fair value of assets and lia abilities. AASB 1 13 does not change when n an entity is req quired to use fair value, but rather, provides gu uidance on how w to determine fair value when fa ir value is required ay his definition ma or permitted. Application of th ed result in differrent fair values being determine for the relevant assets.

1 Januarry 2013

1 July 2013

1 Januarry 2013

1 July 2013

AASB 13 also o expands the d disclosure requirements for all assets o or liabilities carrie ed nformation abou ut at fair value. This includes in ons made and tthe qualitative the assumptio impact of thos se assumptionss on the fair valu ue determined. Consequentia al amendments were also made to other stand dards via AASB 2011-8. AAS SB 119 9

mployee Em Benefits

The revised standard s change es the definition n of short-term em mployee benefitss. The distinctio on between shorrt-term and othe er long-term employee ben nefits is now baased on whetherr the benefits are a expected to be settled wholly within 12 mon nths after the re eporting date. Consequentia al amendments were also made to other stand dards via AASB 2011-10.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Reference

Title

Summary

Application date of standard*

Impact on group financial report

Application date for Group

AASB

Application of Tiers of Australian Accounting Standards

This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements:

1 July 2013

The Group will be Tier 1 and has not adopted the standard early. Application of the standard will not affect any of the amounts recognised in the financial statements, but may impact the amount of information disclosed.

1 July 2013

1053

(a) (b)

Tier 1: Australian Accounting Standards Tier 2: Australian Accounting Standards – Reduced Disclosure Requirements

* designates the beginning of the applicable annual reporting period unless otherwise stated

(c) Principles of consolidation Subsidiaries The Group consolidated financial statements comprise the financial statements of the Society and its subsidiaries as at 30 June each year. The financial statements of the subsidiaries are prepared for the same reporting year as the Society, using consistent accounting policies. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and will continue to be consolidated until the date that such control ceases. (d) Subscription Revenue: The Society obtains revenue through annual subscriptions paid by its members. Subscriptions income is recognised evenly over the period of the membership, being twelve months from 1 July each year. All subscriptions expire on 30 June each year. Subscription monies received prior to 1 July which relate to future membership subscription periods are recorded as current liabilities. (e) Premium revenue MIPS membership provides medical indemnity insurance cover under the MIPS Members’ Medical Indemnity Insurance Policy. This master policy is underwritten by subsidiary MIPS Insurance Pty Ltd (MIPSi) and has a minimum deposit premium that is payable in four instalments. When the contract of insurance for the subsequent year has been signed before 30 June the Society recognises an intercompany liability and a deferred master policy expense. Similarly MIPSi recognises an intercompany receivable and a liability for the unearned premium. Premium income is recognised evenly over the period of the insurance policy. The policy year is twelve months from 1 July with an expiry date of 30 June each year. Premium revenue comprises only the premium charged to indemnify policy holders including the amounts in the premium collected to allow the Group to meet its obligation in relation to payments due to the Commonwealth Government of Australia for the funding of the Run-Off Cover Scheme (“ROCS”). Premium revenue excludes stamp duty, GST and other amounts collected on behalf of third parties.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 emium Supporrt Scheme (“P PSS”) Pre The e Medical Inde emnity Act 2002 establishes s a Premium S Support Schem me (“PSS”) wh hich in generaal terms provid des a subsidy to me edical practitioners whose to otal indemnity costs exceed a set proportion of their inc come (as definned in the legislation). The Gro oup is responssible for admin nistering the PSS P for its me embers and in this role it obttains details off estimated inc come to dettermine the su ubsidy, if any, for each eligib ble member to o be collected from Medicare Australia. Inn subsequent years, the Group obttains actual income details from f participating medical p practitioner me embers and either collects m monies from th he members for f any y amounts req quired to be re eimbursed to Medicare M Austtralia or seeks s additional subsidies from M Medicare Austtralia to be pas ssed through tto the eligible member. As the Group is rresponsible fo or credit risk an nd is impactedd by the timing g of cash flowss, am mounts due to a and from Med dicare Australia a and policyho olders are rec cognised on the Statement oof financial position. (f) Outwards rein nsurance Am mounts paid to reinsurers un nder insurance e contracts he ld by the Grou up are recorde ed as an outwaard reinsuranc ce expense an nd are e recognised in n the Stateme ent of compreh hensive incom me from the atttachment date e over the peri od of indemniity of the rein nsurance conttract in accord dance with the e expected patttern of the inc cidence of risk k ceded. Wh hen reinsurancce contracts are a signed befo ore 30 June M MIPSi fully acc crues the reins surance expennse with a corrresponding defferred reinsura ance expense e asset. The co orresponding Quota Share commission in ncome is also recognised as s unearned inc come. (g) Unexpired rissk liability At each reporting g date the Gro oup assesses whether unea arned premium ms are sufficient to cover all expected futu ure cash flowss rela ating to claimss against curre ent insurance contracts. Th his assessmen nt is referred to o as the liabilitty adequacy test and is perrformed for MIIPS Insurance e Pty Ltd (MIPSi), as all insu urance contrac cts are subject to broadly si milar risks. If th he present value of the expected future cash c flows rela ating to future claims plus th he additional riisk margin to reflect r the inh herent uncertainty in the cen ntral estimate exceeds e the u unearned prem miums less related intangibl e assets and related deferred acq quisition costss then unearne ed premiums are a deemed to o be deficient. Any such deficie ency is recognised immediattely and entire ely in the State ement of comp prehensive inccome both gro oss and net off rein nsurance. The e deficiency iss recognised first by writing d down any rela ated intangible e assets and thhen related de eferred acq quisition costss, with any exccess being rec corded in the S Statement of financial f position as an unexxpired risk liab bility. No defficiency has be een identified for either bala ance date or th he comparativ ve balance date. (h) Outstanding cclaims liabilityy The e liability of ou utstanding claiims is recognised on a claim ms made basis and is meas sured as the ceentral estimate of the prese ent value of expecte ed future paym ments against claims c incurre ed at the reporrting date unde er general insuurance contra acts issued by MIP PSi, with an additional prudential (or risk)) margin to allo ow for the inhe erent uncertainty in the centtral estimate. The e expected futture paymentss include those e in relation to o claims reporrted but not ye et paid and antticipated claim ms handling cos sts. Cla aims handling costs include costs that can n be directly a associated with h individual cla aims, such ass legal and pro ofessional feess, and d costs that ca an only be indirectly associa ated with indivvidual claims, such as claims administratioon costs. Ou utstanding claims are determ mined taking in nto account an n actuarial valuation. A sum mmary of the aactuarial metho odology and key k ass sumptions is d disclosed in No ote 3. Exp pected future payments are e discounted to o present valu ue using a risk k free rate.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Prudential margin MIPSi includes a prudential margin in its liability for outstanding claims. Under prudential standards issued by the Australian Prudential Regulation Authority (APRA), a licensed insurer must include a prudential margin in its estimate of outstanding claims liabilities for prudential reporting so that the probability of the estimate for outstanding claims being sufficient to meet all claims is a minimum of 75%. MIPSi has elected to increase the probability of sufficiency to well above the 75% minimum. Without a prudential margin, the liability for outstanding claims represents the central estimate for which all claims will be settled. That is, there is a 50% probability of it being either too high or too low. The Group has elected to adopt a prudential margin that is different for accounting and prudential reporting purposes. Details of the levels adopted are disclosed in Note 20. The prudential margin is reassessed each year taking into account actuarial valuations as part of the process of determining the liability for outstanding claims of the MIPSi. A summary of the level of sufficiency achieved by the prudential margin is disclosed in Note 3. (i) Provisions and employment benefits Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the statement of comprehensive income net of any reimbursement. Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the reporting date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision resulting from the passage of time is recognised in finance costs. Provision for indemnity obligations The provision for indemnity obligations arises from the discretionary indemnity provided by the Group to members prior to 30 June 2003. In general terms, following the enactment of Medical Indemnity legislation, the Group is not able to indemnify members other than through insurance in relation to medical indemnity incidents occurring after 30 June 2003. The discretionary indemnity provided by the Group to its members covers incidents reported under extended reporting benefit and death, disability or retirement arrangements. The provision for discretionary indemnity obligations, is determined taking into account an actuarial valuation and includes an allowance for incidents that have occurred but for which a request for indemnity has yet to be received. The valuation is based on the fair value that the Group would rationally pay to settle or transfer the indemnity obligations. The Group includes a prudential margin in determining the fair value of the provision, as a transfer of obligations would typically include such a margin to allow for inherent uncertainty. As the Group is no longer providing discretionary medical indemnity cover to its members for new incidents, and the nature of indemnity obligations is volatile, the prudential margin for the provision has been based on a 75% confidence interval. The provision is discounted to present value at balance date. Further details on the assumptions supporting the estimate are disclosed in Note 2.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 ovisions for em mployee leave e benefits Pro (i) Wages W and s salaries, annu ual leave and personal lea ave Lia abilities for wag ges and salariies, including non-monetaryy benefits, ann nual leave and d accumulatingg personal lea ave expected to t be settled within 12 months off the reporting date are reco ognised in othe er payables in respect of em mployees’ serv vices up to the e porting date an nd are measurred at the amo ounts expecte ed to be paid when w the liabilities are settleed. Liabilities for f nonrep acc cumulating pe ersonal leave are a recognised d when the lea ave is taken and measured at the rates ppaid or payable e. (ii) Long service e leave e liability for lo ong service lea ave is recogniised in the pro ovision for emp ployee benefitts and measurred as the pre esent value of The exp pected future payments to be b made in res spect of servicces provided by b employees up to the repoorting date using the projectted uniit credit metho od. Considerattion is given to o expected futture wage and d salary levels, experience oof employee departures and d perriods of servicce. Expected fu uture payments are discoun nted using ma arket yield at th he reporting daate on nationa al governmentt bon nds with termss to maturity and a currency that match, as closely as po ossible, the esttimated futuree cash flows. (iii)) Retirement benefit obligations The e employees’ nominated su uperannuation funds receive e contributions s from the Gro oup as prescribbed by law. Contributions to o the e funds are reccognised as an expense as they become payable. (j) Reinsurance a and other reco overies receiva able The e Group has insurance risk in the normal course of bussiness for all of o its businesses. Reinsurannce assets rep present balancces due e from reinsurrance compan nies. Amounts recoverable ffrom reinsurers are estimate ed in a manneer consistent with w the outtstanding claim ms provision or o settled claim ms associated with the reins surer’s policies s and are in acccordance witth the related rein nsurance conttract. Reinsurance asssets are review wed for impairrment at each reporting date e or more frequently when aan indication of o impairment aris ses during the e reporting yea ar. Impairmentt occurs when n there is objec ctive evidence e as a result of an event tha at occurred after inittial recognition n of the reinsurance asset th hat the Group may not receive all outstan nding amountss due under th he terms of the e con ntract and the event has a reliably r measu urable impact o on the amoun nts that the Gro oup will receivve from the reiinsurer. The imp pairment loss is recorded in n the income statement. Reinsurance asssets or liabilitie es are derecog gnised when tthe contractua al rights are ex xtinguished orr expire or whe en the contracct is nsferred to an nother party. tran Reinsurance and d other recove eries receivablle on paid clai ms, reported claims not yett paid, indemnnity paid and th he provision fo or demnity obligations are reco ognised as rev venue. ind Recoveries on claims not yet paid p and the provision p for in ndemnity oblig gations are me easured as thee present value of expected d ure receipts, ccalculated on the t same basiis as the liabiliity for outstanding claims an nd provision foor indemnity obligations. o futu Hig gh Cost Claims Scheme (“H HCCS”) Oth her recoveriess include amou unts due from the Common wealth Government’s High Cost Claims S Scheme estab blished by the Me edical Indemnity Act 2002. Under U the sche eme the Comm overnment ma akes financial contributions towards claim ms monwealth Go of the t Group for each insurancce or indemniffication claim n notified after 1 January 200 03, of 50% of tthe amount in excess of the hig gh cost claims threshold, currrently $300,000. Recoverie es under the HCCS H on outstanding claimss are measure ed at the net pre esent value of the expected future receiptts, calculated o on the same basis b as the lia ability for outst standing claims and provisio on for indemnificatio on obligations.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 (k) Run-Off Cover Scheme The Medical Indemnity Act 2002 established the Run-Off Cover Scheme (“ROCS”) as part of a framework for providing medical indemnity insurance for medical practitioners who have ceased practice. Under the framework: •

•

• •

if a practitioner has ceased practice for three years or has reached age 65, the practitioner’s most recent medical indemnity insurer must offer a Run-Off Cover Scheme policy. Any accepted claims from the practitioner under a ROCS policy will be reimbursed by Medicare Australia from ROCS scheme funds; under the terms of a contract with government for the first three years following cessation of practice and whilst the practitioner is under age 65, the practitioner’s most recent medical indemnity insurer must make an offer to provide insurance coverage, at a nominal premium for those members with 10 or more years of qualifying membership; a levy is imposed on medical indemnity insurers to cover the cost of ROCS, with the rate currently set at 5% of premium received. This levy is incorporated into the premiums charged by insurers; and medical indemnity insurers receive a fee for handling retirement claims on behalf of ROCS and for associated policy administration under contracts with government.

Provision for retirement claims The Group recognises a provision for retirement claims (both eligible and insurer retirement) in relation to expected future payments to practitioners in retirement that have not accepted a retirement policy at balance date, based on actuarial advice. This provision is discounted to a present value at balance date and includes an allowance for the cost of handling these claims. Retirement claim recoveries The Group recognises recoveries in relation to expected future recoveries associated with the provision for retirement claims, based on actuarial advice. Such recoveries arise under ROCS (for eligible retirement only), the High Cost Claims Scheme and reinsurance contracts in place prior to balance date. The recoveries are measured as the present value of the expected future receipts, calculated on the same basis as the provision for retirement claims. ROCS levy A liability for the ROCS funding levy is recognised on business written to balance date. Levies payable are expensed on the same basis as the recognition of premium revenue, with the portion relating to unearned premium being recorded as a prepayment. (l) Deferred acquisition costs The acquisition costs incurred in obtaining general insurance contracts are deferred and recognised as assets where they can be reliably measured and where it is probable that they will give rise to premium revenue that will be recognised in the statement of comprehensive income in subsequent reporting periods. The Group has not deferred any acquisition costs at year end or the comparative year end.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 (m)) Income tax Current tax asse ets and liabilitie es for the currrent and prior periods are measured m at the amount exppected to be re ecovered from m or e current perio od's taxable income. The tax x rates and taxx laws used to o compute the e paiid to the taxatiion authoritiess based on the am mount are those that are ena acted or substa antively enactted by the reporting date. Deferred income e tax is provide ed on all temp porary differen ces at the rep porting date be etween the taxx bases of ass sets and liabilitties d their carrying g amounts forr financial repo orting purpose es. and Deferred income e tax liabilities are recognise ed for all taxab ble temporary differences. Deferred income e tax assets arre recognised for all deductiible temporary y differences, carry-forward of unused tax x credits and unu used tax losse es, to the extent that it is pro obable that taxxable profit will be available e against whichh the deductib ble temporary diffferences and tthe carry-forw ward of unused d tax credits an nd unused tax x losses can be utilised. The e carrying amount of deferred income tax x assets is revviewed at each h reporting datte and reduceed to the exten nt that it is no lon nger probable that sufficient taxable profit will be availab ble to allow all or part of the e deferred incoome tax assett to be utilised. Unrecognised de eferred income e tax assets are a reassessed d at each repo orting date and d are recognissed to the exte ent that it has bec come probable e that future ta axable profit will w allow the d deferred tax as sset to be reco overed. Deferred income e tax assets an nd liabilities arre measured a at the tax rates s that are expected to applyy to the year when w the asset is alised or the lia ability is settle ed, based on ta ax rates (and tax laws) that have been en nacted or subsstantively enacted at the rea rep porting date. Deferred tax asssets and deferred tax liabilities are offset o only if a legally y enforceable right exists too set off curren nt tax assets aga ainst current ta ax liabilities an nd the deferre ed tax assets a and liabilities relate r to the sa ame taxable eentity and the same taxation n autthority. Oth her taxes Revenues, expenses and asse ets are recogn nised net of th he amount of GST G except: •

•

Wh hen the GST in ncurred on a purchase p of go oods and serv vices is not rec coverable from m the taxation authority, in which case the GST G is recogn nised as part o of the cost of acquisition a of the asset or ass part of the expense item as a plicable. app Re eceivables and d payables, wh hich are stated d with the amo ount of GST in ncluded.

The e net amount of GST recoverable from, or o payable to, tthe taxation authority is included as part oof receivables s or payables in i the e Statement off financial position. Cash flows are in ncluded in the e statement of cash flows on n a gross basis and the GST T component of cash flows arising from inv vesting and financing activities, which is re ecoverable fro om, or payable e to, the taxation authority iss classified as s part of operating cas sh flows. Commitments an nd contingenccies are disclos sed net of the amount of GS ST recoverable from, or payyable to, the ta axation authorrity. (n) Assets backin ng general inssurance liabilitties The e investmentss portfolio of MIPSi M is actively managed ass part of the Group’s G investment strategyy to ensure tha at investmentss ma ature in accord dance with the e expected patttern of future cash flows arrising from gen neral insurancce liabilities. The e Group has d determined tha at all investme ents of MIPSi are held to ba ack general ins surance liabilitties and their accounting trea atment is desccribed below. As these asse ets are manag ged under the Risk Management Statemeent (“RMS”) off MIPSi on a fa air value basis and are reported to t the Board of o MIPSi on thiis basis, they have h been valued at fair vallue through prrofit or loss.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 (o) Investments Investments within the scope of AASB 139 Financial Instruments: Recognition and Measurement are categorised as investments at fair value through profit or loss, held-to-maturity or available-for-sale. The classification depends on the purpose for which the investments were acquired. When investments are recognised initially, they are measured at fair value, plus in the case of assets not at fair value through profit or loss, directly attributable transaction costs. Recognition and Derecognition All regular way purchases and sale of investments are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets under contracts that require delivery of the assets within the period established generally by regulation or convention in the market place. Investments are derecognised when the right to receive cash flows from the investments have expired or been transferred. Subsequent measurement i) Investments – fair value through profit or loss Investments classified as held for trading are included in the category of ‘Investments at fair value through profit or loss’. Investments are classified as held for trading if they are acquired for the purpose of selling in the near term with intention of making a profit. Investments designated as ‘fair value through profit of loss’ are re-measured to fair value at balance date. Investments backing general insurance liabilities are designated ‘fair value through profit or loss’. Gains or losses on financial assets held for trading are recognised in profit or loss. ii) Held-to-maturity investments Non-derivative investments with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Investments that are intended to be held-to-maturity, such as bank bills are subsequently measured at amortised cost. This cost is computed as the amount initially recognised minus principal repayments (if any), plus or minus the cumulative amortisation using the effective interest method or any difference between the initially recognised amount and the maturity amount. Bank bills are designated as ‘held-to-maturity’ as the Group intends to hold these investment to maturity. iii) Available-for-sale investments Available-for-sale investments are those non-derivative investments, principally equity securities that are designated as available-for-sale or are not classified as any of the two preceding categories. After initial recognition, available-for-sale securities are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss. All investments are initially recognised at fair value, which is the cost of acquisition. The Group capitalises all acquisition cost. Sales cost net off the proceeds. Otherwise transactions costs are capitalised on initial recognition. Details of fair value for the different types of investments are listed below: • •

Cash assets are carried at face value of the amounts deposited or drawn. The carrying amount of cash approximates to their fair value; and Shares, fixed interest securities, options and units in trusts listed on the stock exchange are measured at the quoted bid price of the instrument at Statement of financial position date.

Where there is no quoted market price, fair value of an investment is determined by reference to the current market value of another instrument which is substantively the same or alternatively is calculated based on the expected cash flows of the underlying net asset base of the investment.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 vidends and distributions are e recognised as a revenue wh hen the right to t receive payment is estabblished. Intere est revenue is Div rec cognised on an n accruals bassis, using the effective interrest rate metho od. (p) Plant and equ uipment Pla ant and equipm ment is stated at historical cost c less depre eciation. Histo orical cost inclu udes expenditture that is directly attributab ble to the t acquisition n of the items. Subsequent costts are included d in the asset’’s carrying am mount or recog gnised as a separate asset, as appropriate, only when iti is obable that futture economicc benefits asso ociated with th he item will flow w to the Group p and the costt of the item can be measurred pro reliiably. All otherr repairs and maintenance m are a charged to o the Statement of comprehensive incomee during the financial period d in which they are in ncurred. Depreciation for plant and equ uipment is calc culated using tthe reducing balance b metho od to allocate their cost, while depreciatio on for leasehold imp provements iss calculated us sing the straig ht line method d to allocate th heir cost, net oof their residua al values, over the eir estimated u useful lives of 5 years. The e assets resid dual values and useful lives are reviewed,, and adjusted d if appropriate e, at each Stattement of fina ancial position datte. The Group p conducts an annual interna al review of assset values, which w is used as a a source off information to o assess for any a ind dicators of imp pairment. External factors, such as change es in expected d future proce esses, technoloogy and economic condition ns, are e also monitore ed to assess for f indicators of o impairment . If any indicattion of impairm ment exists, ann estimate of the t asset's rec coverable amo ount is calcula ated. The e assets carryying amount iss written down immediately tto its recovera able amount iff the asset’s caarrying amoun nt is greater th han its estimated reccoverable amo ount. Ga ains and lossess on disposalss are determin ned by compa ring proceeds s with the carry ying amount aand are include ed in the Sta atement of com mprehensive income. (q) Impairment o of non-financia al assets The e Group conducts an annua al internal review of asset va alues, which is s used as a so ource of inform mation to asse ess for any ind dicators of imp pairment. External factors, such as change es in expected d future proce esses, technoloogy and economic condition ns, are e also monitore ed to assess for f indicators of o impairment . If any indicattion of impairm ment exists, ann estimate of the t asset's rec coverable amo ount is calcula ated. (r) Leases The e determinatio on of whether an arrangeme ent is or conta ains a lease is based on the substance off the arrangem ment and requiires an assessment o of whether the e fulfilment of the t arrangeme ent is depende ent on the use e of a specific asset or asse ets and the arrangement con nveys a right to t use the asset. Op perating lease payments are e recognised as a an expense e in the Statem ment of comprehensive incoome on a straight-line basis ove er the lease te erm. Operating g lease incentives are recog gnised as a lia ability when received and suubsequently re educed by allo ocating lease payments between rental expense and re eduction of the e liability. (s) Trade and oth her payables Tra ade and other payables are carried at amortised cost a and due to theiir short-term nature n they aree not discountted. They rep present liabilities for goods and a services provided p to the e Group prior to the end of the t financial yyear that are unpaid and arisse when the Group becomes obliiged to make future f paymen nts in respect of the purchas se of these gooods and services. The am mounts are unssecured and are a usually paid within 30 da ays of recognittion.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 (t) Receivables Receivables are initially recognised at fair value, being the amounts due. They are subsequently measured at amortised cost. A provision for doubtful debts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows. The charge is recognised in the Statement of comprehensive income. (u) Cash and cash equivalents Cash and cash equivalents in the Statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. For the purposes of the Statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above. (v) Rounding of amounts The Group is of a kind referred to in Class order 98/0100, issued by the Australian Securities and Investments Commission, relating to the “rounding off” of amounts in the financial report. Amounts in the financial report have been rounded off in accordance with that Class Order to the nearest thousand dollars, or in certain cases, the nearest dollar. Note 2 Critical accounting judgements and estimates (a) Critical estimates and assumptions The Group makes estimates and assumptions in respect of certain key assets and liabilities. Estimates and judgements are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to reasonable under the circumstances. The key areas where critical estimates are applied are described below. (i) The ultimate liability arising from claims made under insurance contracts Provision is made at the year end for the estimated cost of claims incurred but not settled at the Statement of financial position date. The estimated cost of claims includes direct expenses to be incurred in settling claims gross of any recoveries. The Group takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, particularly in the early stages after initial notification, it is likely that the final outcome will prove to be different from the original liability established. The medical indemnity liability class of business will typically display greater variations between initial estimates and final outcomes than other classes of insurance because there is a degree of difficulty in estimating reserves. In calculating the estimated cost of unpaid claims, the Group relies on a variety of estimation techniques, generally based on statistical analyses and review of historical experience, which assumes that the development pattern of current claims will be consistent with past experience. Allowance is made, however, for changes or uncertainties which may create distortions in the underlying statistics or which might cause the value of unsettled claims to increase or reduce when compared with the cost of previously settled claims including: • • • • • •

Changes in Group processes which might accelerate or slow down the development and / or notification of paid or incurred claims, compared with statistics from previous periods; Changes in legal environment; The effects of inflation; The impact of large losses; Movement in industry benchmarks; and Medical and technological developments.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 ethods used in n deriving the o outstanding claims liability at a year end arre detailed in note n 3. Furrther informatiion on and me (ii) The ultimate e obligation arising a from claims c made u under discrettionary coverr a w with accounting g policy 1(i), th he Group reco ognises a liabillity for the estimated cost off settling discretionary In accordance ind demnity obligations, includin ng those incide ents that have e occurred but for which a re equest for indeemnity has yett to be receive ed. Due to the nature e of the liabilitty, it is likely th hat the final ou utcome will pro ove to be diffe erent from the original liabilitty established d. e liability is su ubject to the vo olatility discussed above in relation to insurance contra acts, due to thee nature of ind demnity The arrangements. S Similar to the outstanding o cllaims liability ffor insurance contracts, c an actuarial a valuaation is obtained to estimate e the e liability for ind demnity obliga ations. Acttuarial approa ach The e methodology adopted for indemnity obligations of the e mutual entities is similar to o that outlinedd in note 3 in relation to insurance contra acts of MIPS. In addition, in n estimating th he liability for in ncidents that have h occurredd but for which h a request forr ind demnity has ye et to be receivved, the actuarry uses the avverage claim size s to project the liability. The e key measure es relating to the actuarial valuation v of the e provision for indemnity ob bligations are aas follows: 2012

2011

4.6 years

ears 5.4 ye

-15% -10% -5% 0%

0% 0% 0% 0%

Reduction for inccidents converrting to indemnity requests (by value)

50%

5 50%

Reduction for inccidents converrting to indemnity requests (by number)

85%

8 85%

Exp pense rate

9.0%

Dis scount rate

1.8%

3.4%

Infllation (normal plus superimp posed) rate

6.5%

$1440,000

$140,000

75%

7 75%

Ave erage weighte ed term to setttlement from in ndemnity requ uested date Uplift for initial ovver-reserving on claims greater than $250 0,000: • At end o of report year • 1 year a after end of report year • 2 years after end of report year • 3 years after end of report year

Ave erage claim siize for inciden nts occurred bu ut indemnity n not yet requestted Lev vel of sufficien ncy achieved by b prudential margin m Sensitivities

In estimating e the e liability for inccidents occurrred but indem nity not yet requested, the actuary a considders the sensitivity by using a sto ochastic model which treats assumptions as random ratther than fixed d variables. Each E assumptiion takes a ran nge of differen nt values, each with h associated probabilities. p The e key assump ptions that will affect the liab bility calculatio ons are the upllift factors for initial under-reeserving, the probability p of inc cidents likely a actually becom ming claims, the 6.5% pa use ed for future claims c inflation n and, for the IIBNR liabilities s, the incidentt to rep porting delay p pattern. When assessing the e sensitivity off the results fo or known claim ms by varying aassumptions, the presence of a comprehensive c e insurance prrogramme me eans that there e is comparativ vely limited sc cope for deteriioration in exp perience to adv versely affect the company finances. Cla aims handling costs have a direct impact on profit (with h no tax impac ct, due to the ta ax status of thhe Society). An A increase of claims handling ccosts by 4.5% %, results in a $63,077 $ decre ease in profit and a equity (with an equivaleent $63,077 increase in proffit and d equity with a 4.5% decrea ase in claims handling h costss).

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 (iii) The determination of retirement claims liabilities Over time, an increasing proportion of reported claims will be eligible for a recovery under ROCS policies. These claims will be in relation to former practitioners who had previously retired from medical practice over the age of 65, died or were permanently disabled and unable to work. ROCS policies will also cover qualifying claims against doctors on maternity leave or who are under age 65 but have ceased work for 3 years. (iv) Assets arising from reinsurance contracts and other recoveries Assets arising out of reinsurance contracts are also calculated using the above methods. In addition, the recoverability of these assets is assessed on a periodic basis to ensure that the balance is reflective of the amounts that will be ultimately received, taking into consideration factors such as counter party and credit risks. Impairment is recognised where there is objective evidence that the Group may not receive amounts due to it and these amounts can be reliably measured. (b) Critical judgements It has been determined that no critical accounting judgements have been made in the year. Note 3 Actuarial assumptions and methods The Group provides medical indemnity insurance, which is long tail in nature. The process for determining the value of outstanding claims liability is described below. The valuation methodology adopted is to adjust individual case estimates based on the historical accuracy of claims reserving by the case handlers. Typically, individual claims are found in retrospect to be under-reserved at the end of the year in which they are reported due to insufficient information being available on which to base an accurate initial assessment. Thereafter, at successive year ends, the case estimates have proved in aggregate to be sufficient to meet the cost of settling reported claims based on current settlement values. Where an individual case estimate has been placed on a reported adverse incident that has not yet become a formal claim, a reduction factor is applied as past experience has shown that only a relatively small proportion of such adverse incident reports eventually become claims, although typically it is the more serious incidents with the largest case estimates that convert to claims. In order to project the ultimate payments that will be made, claims inflation is incorporated to allow for both general economic inflation as well as any superimposed inflation detected in the modelling of payment experience. The addition of superimposed inflation reflects the fact that over time claims inflation has exceeded both price inflation and wage inflation. Superimposed inflation may arise from non-economic factors such as developments of legal precedent. Projected individual claims are then compared with the appropriate threshold levels for recoveries under any reinsurance that has been secured and the HCCS. Projected payments are discounted for the time value of money. Inherent uncertainties in this class of business are considered when setting the appropriate risk margin.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 Acttuarial assump ptions The e following assumptions havve been made e in determinin ng the outstan nding claims lia abilities in resspect of medical claims, whicch com mprise by far tthe majority off the liabilities. 2012

2011

3.8 years

ears 3.8 ye

550.0%

50.0%

Exp pense rate

9.0%

Dis scount rate

2.5%

4.8%

Infllation rate

4.0%

Superimposed in nflation rate

2.5%

992.5%

92.5%

Ave erage weighte ed term to setttlement from reporting date Reduction for m medical inciden nts converting to claims by vvalue

Lev vel of sufficien ncy achieved by b prudential margin m The ese assumptio ons represent the following:: Ave erage weighte ed term to setttlement The e average weighted term to o settlement is based on histtoric settlement patterns. Reduction for inccidents converrting to claims s by value

The e reduction to allow for the fact f that many y adverse incid dent reports do d not become e claims is bassed on an ana alysis of past con nversion ratess with each case weighted by b the value off those claims. Exp pense rate Cla aims handling expenses were calculated by reference tto both curren nt and projecte ed 2012/13 claaims handling costs, as a perrcentage of prrojected 2012//13 gross claim ms payments. Dis scount rate Dis scount rates derived from market m yields on Commonwe ealth Governm ment securities s as at the balaance date with h a term to red demption that matches as cllosely as poss sible to the terrm of the Grou up’s liabilities. Infllation Infllation assump ptions are set by b reference to o current econ nomic indicato ors and are co onsistent with aassumptions that t were ado opted in previo ous years. Sup perimposed in nflation Superimposed in nflation occurss due to non-e economic effeccts such as co ourt settlement amounts incrreasing at a fa aster rate than n wages or CPI infflation. An allo owance for sup perimposed in nflation was made, after con nsidering both the superimposed inflation esent in the po ortfolio and ind dustry superim mposed inflatio on trends. pre Sensitivity analysis – Insura ance contractts (i) Summary The e Appointed A Actuary conducts sensitivity analyses to q quantify the ex xposure to the risks of changges in the key y underlying varriables. The va aluations inclu uded in the rep ported results are calculated d using certain n assumptionss about these variables as disclosed above. The moveme ent in any key variable will i mpact the perrformance and d equity of thee Group. The tables below des scribe how a cchange in eacch assumption will affect the e insurance liabilities and show an analysiis of the sensiitivity of the prrofit / (lo oss) and equitty to changes in the three ke ey assumption ns both gross and net of reinsurance.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Variable

Impact of movement in variable

Average weighted term to settlement

A decrease in the average term to settlement would lead to more claims being paid sooner than anticipated. As the annual rate of claims inflation is very similar to the rate of discount applied, any change in the term to settlement does not have a material impact on the liabilities.

Reduction for incidents converting to claims

The reduction factor applied is very important for assessing the liabilities for the most recent years of account which will tend to have a large number of adverse incident reports. As time passes, these either convert to claims or are closed without payment so that by two or three years out the impact is materially reduced.

Expense rate

An estimate for the internal costs of handling claims is included in the outstanding claims liability. An increase or decrease in the expense rate assumption would have a corresponding impact on the claims expense. The effect of a change in this variable is shown in the table below.

Discount rate

The outstanding claims liability is calculated by reference to expected future payments. These payments are discounted to adjust for the time value of money. The methodology to be used for the valuation is prescribed by the Australian Prudential Regulation Authority (APRA) to a rate that should equal the yield on Commonwealth bonds with a term to redemption that matches as closely as possible the term of claims liabilities. As the discount rate relates to the yield on Government bonds which form a large part of the investment portfolio, any movement in the yield which has the effect of increasing or decreasing the liabilities should have a matching increase or decrease in the value of the assets.

Inflation and superimposed inflation rates

Expected future payments are inflated to take account of inflationary increases including an amount for superimposed non-economic inflationary factors. An increase or decrease in the assumed levels of either economic or superimposed inflation would have a corresponding impact on claims expense, although the presence of the HCCS and the reinsurance programme will reduce the impact. The effect of a change in this variable is shown in the following table.

(ii) Impact of changes in key variables Movement in variable

Impact on group equity / (loss) before tax $’000

Impact on group equity / profit for the year after tax $’000

+3.25%

(5,693)

(3,601)

-3.25%

5,144

3,985

+1%

(929)

(650)

-1%

929

650

+25%

9,290

6,503

-25%

(8,681)

(6,077)

Variable Inflation and superimposed inflation

Claims handling costs

Incident probability reduction

Note 4 Financial risk management objectives and policies The financial condition and operation of the Group are affected by a number of key risks including insurance risk, interest rate risk, credit risk, liquidity risk and market risk. In accordance with Prudential Standards GPS 220 Risk Management for General Insurers and GPS 230 Reinsurance Arrangements for General Insurers issued by the Australian Prudential Regulation Authority (APRA), the Board and senior management of the Group have developed, implemented and maintain a sound and prudent Risk Management Strategy (RMS) and Reinsurance Management Strategy (REMS) for the licensed insurer subsidiary MIPSi.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 e RMS and REMS identify MIPSi’s M policie es and proced dures, process ses and contro ols that comprrise its risk ma anagement and The con ntrol systems. These system ms address all material riskss, financial and non financia al, likely to be faced by MIPSi. Annually th he Board of MIPSi ccertifies to APRA that adequ uate strategiess have been put p in place to monitor thosee risks, that MIPSi has stems in place e to ensure compliance with legislative an nd prudential requirements r and a that the B Board of MIPSi has satisfied sys itse elf as to the co ompliance with h the RMS and d REMS. The RMS and RE EMS have been approved byy the Board an nd provided to o AP PRA. The e risk manage ement framew work that suppo orts MIPSi’s R RMS and REM MS is used by the t entire Grooup to manage e risks outside e the e insurance op perations. This includes dev velopment of a an investmentt strategy that includes fundds held by non n-insurance enttities. (a) Insurance risk MIP PSi has an ob bjective to conttrol insurance risks thus red ducing the vola atility of financ cial results. In addition to the inherent unc certainty of inssurance risk, which w can lead d to significan t variability in the loss experience, financcial results from m insurance bus siness are affe ected by markket factors, particularly comp petition and movements m in asset a values. Short term va ariability is, to som me extent, a fe eature of business. Key asp pects of the prrocesses established in the RMS to mitigaate insurance risk include: • • • •

• • •

•

The e maintenance and use of management m iinformation sy ystems; Acttuarial modelss, using inform mation from the e managemen nt information system, are uused to calcula ate premium and a mo onitor claims patterns. p Past experience an nd statistical methods m are used as part off the process; Do ocumented pro ocedures are followed f for un nderwriting an nd accepting in nsurance riskss; Re einsurance is used u to limit th he Group’s exp posure to large single claims and aggregaation of claims s. When selecting a reinssurer the Group only conside ers those com mpanies that prrovide high seecurity. In orde er to assess th his, rating information from the pub blic domain orr information gathered g throu ugh internal invvestigation is used; order to limit concentration c of credit risk, in purchasing reinsurance the Group hass regard to existing reinsurance In o asssets and seekks to limit exce ess exposure tto any single reinsurer r or Group of relatedd reinsurers; The e Group doess not undertake e any form of alternate risk transfer; The e mix of assetts in which the e Group investts is driven by y the nature an nd term of insuurance liabilitie es. The ma anagement of assets and lia abilities is clossely monitored d to attempt to match maturitty dates of assets with the exp pected pattern n of claim paym ments; and Business is limite ed to only one e class of insu rance.

Terrms and cond ditions of insura rance business s The e terms and cconditions attaching to insura ance contractss affect the lev vel of insuranc ce risk acceptted by the Gro oup. All insurance con ntracts written n are entered into on a stand dard form bas is. The Group p writes insurance contracts only on a claiims-made bassis, i.e. liabilities mayy arise in resp pect of claims reported durin ng the term of the insurance e contract, how wever, where retroactive covver is provided p the e event that gave e rise to the cllaim could havve occurred in n a previous pe eriod. The ere are no oth her special term ms and condittions in any off the contacts that have a material m impactt on the financ cial statementss. Co oncentration off insurance rissk Apart from opera ating as a mon noline insurer, the Companyy’s exposure to t concentratio on of insurancce risks is miniimised as the ny natural disa asters and mittigates its risk through comp prehensive rei nsurance prog grammes. Company is not affected by an The e Group’s exp posure to conccentration of monoline m insurrance risk is mitigated m by pro oviding insuraance for divers sified me embership cate egories in all Australian A Sta ates and Territo ories. To man nage the risks associated wiith various me embership cattegories, a riskk based pricing model is adopted.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Development and sensitivities of claims There is a possibility that changes may occur in the estimate of the Group’s obligations at the end of a contract period. The tables in note 20 disclose the estimates of total claims outstanding for each underwriting year at successive year ends. Note 3 identifies the sensitivities associated with the determination of the liability for outstanding claims. Reinsurance counterparty risk When there is reliance on a few reinsurers, there is a potential credit risk. As far as appropriate and in accordance with the RMS, the Group will seek to diversify the reinsurance security it sources. This objective is tempered by the security constraint (which is absolute in relation to counter-party risk ratings) and the relative reinsurance capacity shortage in this segment particularly in relation to Aggregate Stop Loss Protection. Such a decision also needs to recognise the needs of reinsurers for minimum underwriting lines and the requirement for preferential access to participation in the Excess of Loss Programme for desirable Reinsurers willing to participate in the Quota Share Reinsurance and Aggregate Stop Loss Programme. The administration costs that must be passed on to the Group if multiple reinsurers with small lines are involved in the programme must also be considered. Financially strong reputable reinsurers who have significant involvement in a programme have the resources to add value to the operations of the reinsured. As opportunities arise, the Group will seek to diversify security while respecting the long-term support offered by those well-known and established reinsurers with whom relationships already exist. Long-term significant relationships are important in order to weather the regular cycles of a hardening reinsurance market and if unexpected adverse experience occurs in an underwriting year. In addition, due to the nature of insurance offered by the Group, eventual realisation of recoveries from reinsurers is likely to be over an extended period of time, during which the credit quality of the reinsurer may decline. As noted above in (a), the Group reassesses the security of reinsurers each balance date based on information in the public domain and gathered through internal investigation and advice from its reinsurance brokers. (b) Credit risk Credit risk represents the risk that the counterparty to the financial instrument will fail to discharge an obligation and cause the Group to incur a financial loss. With respect to credit risk arising from the financial assets and liabilities of the Group, the Group’s exposure to credit risk arises from potential default of the counterparty, with the current exposure equal to the fair value of these instruments as disclosed in the Statement of financial position. This does not represent the maximum risk exposure that could arise in the future as a result of changes in values, but best represents the current maximum exposure at the reporting date. The Group trades only with recognised, creditworthy third parties, and as such collateral is not requested nor is it the Group’s policy to securitise its trade and other receivables. The Group holds no collateral as security or any other credit enhancements. There are no financial assets that are impaired, or would otherwise be impaired except for the terms having been renegotiated. Credit risk is not considered to be significant to the Group except in relation to investments in debt securities. With respect to all other financial assets, concentration of credit risk is managed by counterparty, and by industry sector. Counterparty risk is not considered to be significant for cash as the total cash balance is held by counter parties with an AA or AAA rating.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 e split of invesstment by classs (bank term deposits, ban k bills, equity and fixed interest securitiess) and maturity y profile is sho own The in note n 15. An industry sector analysis of the e investmentss in financial assets is as follows: Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

Energy

1,70 06

2,4887

597 5

848

Ma aterials

6,48 85

8,5778

2,2 254

2,951

66 62

4885

229 2

166

1,1774

431

3,54 44

4,5772

1,2 233

1,533

95 58

1,0220

326 3

346

229,35 56

216,1887

68,8 892

64,291

2,00 05

1,2772

697 6

435

89 93

9559

309 3

328

245,60 09

236,7334

74,5 537

71,329

Ind dustrials Co onsumer Disc cretionary Co onsumer Stap ples Health Care Fin nancials Tellecommunica ations Utiilities Total Cre edit quality per class of finan ncial assets

The e credit qualityy of financial assets a is mana aged by the G Group using Sttandard and Poor’s P rating caategories, in accordance a wiith the e investment m mandate of the e Group. The Group’s G expossure in each grade g is monito ored on a dailyy basis. This review r processs allo ows the Group p to assess the e potential los ss as a result o of risks and ta ake corrective action. The e table below shows the cre edit quality by class of assett for debt instrruments for the Group. AAA to AA$’000

A+ to AAA $’000

BBB+ to t BBB$’000

Other* $’000

To otal $’000

137,299

5,850

143,149

Bank term depossits

19,699

Corporate bondss

26,334

Go overnment bon nds

30,533

Tottal

213,865

5,850

219,715

201 11

AAA to AA$’000

A+ to AAA $’000

BBB+ to t BBB$’000

Other* $’000

To otal $’000

22,675

120,138

Corporate bondss

28,247

Go overnment bon nds

28,264

199,324

201 12 Bank bills

Bank bills Bank term depossits

Tottal

*Otther consists o of debt instrum ments which do d not yet have e a rating for example e for ne ew issues, butt are selected in line with th he inv vestment mand date of the Grroup.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 The table below shows the credit quality by class of asset for debt instruments for the Society. AAA to AA$’000

A+ to AA$’000

BBB+ to BBB$’000

Other* $’000

Total $’000

Bank term deposits

41,863

2,600

44,463

Corporate bonds

11,445

6,543

Total

59,851

2,600

62,451

2011

AAA to AA$’000

A+ to AA$’000

BBB+ to BBB$’000

Other* $’000

Total $’000

977

41,887

Corporate bonds

9,611

Government bonds

6,163

58,638

2012

Government bonds

Interest bearing securities held for trading

Bank term deposits

Total

*Other consists of debt instruments which do not yet have a rating for example for new issues, but are selected in line with the investment mandate of the Society. (c) Liquidity risk Liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet their obligations to repay their financial liabilities as and when they fall due. The Group manages liquidity risk primarily through the investment strategy (discussed above) and ongoing monitoring of its capital adequacy multiple for MIPSi. MIPSi’s capital adequacy multiple is calculated every quarter as part of routine reporting to APRA and serves as a measure of insurer solvency. Trade payables and other financial liabilities of the Group and Society excluding indemnity related provisions held by the Society generally mature within 12 months of being incurred. Indemnity related provisions held by the Society (refer note 22) take considerably longer to mature and have an average weighted term to settlement referred to in note 2. The methodology used to derive the indemnity provision encompasses a range of actuarial assumptions and is based on historical information (refer note 2), as such a more comprehensive maturity profile cannot be ascertained given the underlying nature of those matters which are indemnified by the Society and how they are calculated. (d) Market risk Market risk is the risk that the fair value of future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates and equity prices. Market risk is managed and monitored using sensitivity analysis, and minimised through ensuring that all investment activities are undertaken in accordance with established mandate limits and investment strategies. In accordance with its investment strategy, the Group invests in equities and hybrids with designated allocation targets. There are specified allowable ranges within which the investments portfolio may vary from the neutral/target allocation. The investment strategy includes an assessment of the risk profile of the shares in which the Group invests and also exposure restrictions based on APRA credit ratings. There are no off-Statement of financial position derivative transactions or open option positions at year end. The Group’s financial assets and liabilities are carried at amounts that approximate their fair value.

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 (e) Interest rate rrisk Inte erest rate risk arises from th he possibility that t changes i n interest rate es will affect fu uture cash flow ws or the fair values v of fina ancial instruments. The Gro oup has establlished limits on n investments s in interest be earing assets, which are mo onitored on a daiily basis. The Group may usse derivatives to hedge aga ainst unexpectted increases in interest ratees. The e following tab ble demonstra ates the sensittivity of the Gro roup’s Stateme ent of comprehensive incom me to a reason nably possible e cha ange in interesst rates, with all a other variab bles held consstant. The e sensitivity off the Statemen nt of comprehensive income e is the effect of the assume ed changes inn interest rates s on: • •

The e interest inco ome for one ye ear, based on the floating ra ate financial as ssets held at 330 June 2012; and Changes in fair value v of investtments for the e year, based on o revaluing fixed rate finanncial assets att 30 June 2012 2.

The e basis pointss sensitivity is based on the volatility of ch hange in the gllobal interest rates r over thee last 10 years. Gro oup Interest Rate

Ch hange in basis pointts Incre ease/decreas se

201 12

201 11

Society

After ta ax effect on Profit hig gher/(lower) $’000

Equity highe er/(lower)

Equity higher/(low wer)

$’000

After tax efffect on Profit higher/((lower) $’000

+15 50

(2,503)

(1,192)

(1,1 192)

-15 50

232

+15 50

(1,782)

(692)

(6 692)

-15 50

784

292

$’000

(f) Equity price riisk Equity price risk is the risk tha at the fair value e of equities d ecreases as a result of changes in markeet prices, whether those cha anges are cau used by factorss specific to th he individual sstock or factors s affecting all instruments inn the market. Equity E price rissk exp posure arises from the Grou up’s investmen nt portfolio. The e effect on net assets attributable to equity and operatiing profit before distribution due to reasonnably possible e changes in ma arket factors, a as represented d by the equity y indices, with h all other varia ables held con nstant is indicaated in the tab ble below. 20 012 Ind dex

Change in equity pric ce %

2011

After ta ax effect on Profit hig gher/(lower)

After tax effect on equity

After tax efffect on Profit higher/((lower)

Affter tax effectt on equ uity

$’000

+20% %

2,675

1,440

3,461

1,777

-20% %

(2,675)

(1,440)

((3,461)

(1,7 777)

+20% %

1,440

1,777

-20% %

(1,440)

(1,7 777)

Gro oup AS SX

Society AS SX

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 (g) Foreign currency risk The Group has no foreign currency risk as all agreements and transactions are in Australian dollars. Note 5 Fair Values All of the Group’s financial asset are based upon quoted market prices. As a result all of the Group’s financial assets have been classified as level 1 investments. Level 1 method is where the fair value is calculated using quoted prices in active markets. Quoted market price represents the fair value determined based on quoted prices on active markets as at the reporting date without any deduction for transaction costs. The financial assets and liabilities included in the Statement of financial position are carried at their fair value or at amounts that approximate their fair values as disclosed in the table below. Refer to note 1 for the methods and assumptions adopted in determining fair values for investments. Group

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

Cash and cash equivalents

51,552

34,992

37,660

15,074

Receivables

23,455

7,675

29,900

8,819

Investments

249,110

236,734

72,737

71,329

Other assets

26,974

3,912

32,846

10,540

351,091

283,313

173,143

105,762

Payables

31,178

5,356

36,805

2,937

Other liabilities

50,153

34,314

50,153

34,314

Total financial liabilities

81,331

39,670

86,959

37,251

Financial assets

Total financial assets Financial liabilities

Note 6 Operating income Group

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

Gross written premiums

(63)

Add/(less): Movement in unearned premium

Premium revenue

(63)

61,214

57,230

67,382

60,476

61,216

57,167

67,382

60,476

Subscription and other income Operating income

Note 9

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 No ote 7 Net cla aims incurred d All insurance bussiness is unde erwritten by MIPSi and all ne et claims incurred informatio on relates to tthe Group. 2 2012

2012 2

2012

22011

2011

Currrent yyear $’’000

Prior P ye ears $’000

To otal

Prior P ye ears $’000

To otal

$’000

Currrent yyear $’ 000

$’000

Undiscounted

28, 875

(21,2 201)

7,674

41, 264

3,600

44,864

Dis scount movem ment

(2,4 485)

10,597

8,112

(6,7759)

2,943

(3,8 816)

Gro oss discounted claims incurrred

26, 390

(10,60 04)*

15,786

34, 505

6,5 543*

41,048

Pru udential margin

3, 390

(7,1 121)

(3,7 731)

6, 287

(4 479)

5,808

Cla aims expense e

29, 780

(17,7 725)

12,055

40, 792

6,064

46,856

(8,6 629)

4,791

(3,8 838)

(9,7746)

(7,6 698)

(17,4 444)

875

(3,0 099)

(2,2 224)

2, 175

482

2,657

Reinsurance an nd other reco overies discou unted

(7,7 754)

1,6 692*

(6,0 062)

(7,5571)

(7,216)*

(14,7 787)

Net claims incu urred

22, 026

(16,0 033)

5,993

33, 221

(1,1 152)

32,069

Gro oss claims in ncurred

Reinsurance an nd other reco overies Undiscounted Dis scount movem ment

Current year amounts relate to o risks borne in the current ffinancial year. Prior period amounts a relatte to a reasses ssment of the ks borne in all previous financial years. As A disclosed in n Note 16, the e majority of future recoveriees on outstand ding claims are e risk from m the HCCS. * These T amountss are impacted d by both chan nges in assum mptions and otther factors (in ncluding reasssessments of individual i case e esttimates). The significant changes in assu umptions are a as follows: 2 2012

2012 2

2012

22011

2011

Grross cla aims $’’000

Recove eries

Net

Recove eries

Net

$’000

Grross claaims $’ 000

$’000

(14,7 761)

580

(14,1 181)

6, 008

(6,9 925)

(9 917)

4, 157

1,112

5,269

535

(2 291)

244

(10,6 604)

1,692

(8,9 912)

6, 543

(7,2 216)

(6 673)

Ch hanges in ass sumptions Cla aims developm ment Dis scount rate/infflation Tottal

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Note 8 Investment Result Group

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

Interest received on bank accounts

1,361

1,193

719

524

Interest on investments - Not held as FVTPL*

4,263

2,904

3,979

2,636

Interest on investments - Held as FVTPL*

9,109

7,881

Dividends received

2,427

2,375

827

808

17,160

14,353

5,525

3,968

Realised gains on investments at FVTPL*

(838)

(422)

Unrealised gains on investments at FVTPL*

(640)

1,838

198

206

Realised gains (losses) on available-for-sale investments

(315)

(260)

(315)

(260)

(1,793)

1,156

(117)

(54)

Expenses on Investment not held as FVTPL*

(179)

(157)

(179)

(157)

Expenses on Investment held as FVTPL*

(433)

(374)

14,755

14,978

5,229

3,757

Investment revenue

Gains (losses) on investments

Investment result *FVTPL – Fair value through profit & loss

Note 9 Subscriptions and other income Group

Subscription income Service fee Recovery of expenses incurred Agents fees Quota Share Commission Sundry Income Subscriptions and other income

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

57,775

56,298

57,775

56,298

939

922

938

922

8,656

3,245

2,485

61,214

57,230

67,382

60,476

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 No ote 10 Indemn nification ben nefit Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

- undiscounted u

4,68 87

2,7002

4,6 687

2,702

- discount d

(662 2)

(5001)

(66 62)

(5 501)

4,02 25

2,2001

4,0 025

2,201

(2,486 6)

(8662)

(2,48 86)

(8 862)

38 88

1008

388 3

108

(2,098 8)

(7554)

(2,09 98)

(7 754)

1,92 27

1,4447

1,9 927

1,447

72 29

6660

575 5

469

2,65 56

2,1007

2,5 502

1,916

Ch harge for inde emnity obliga ations

Mo ovement in re ecoveries - undiscounted u - discount d

Net charge for iindemnity ob bligations Mo ovement in pru udential margin Ind demnification n benefit

ote 11 Other o operating exp penses No Group G 2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

83 31

7888

687 6

676

6,39 95

6,0889

5,9 931

5,757

22 22

2999

192 1

273

2,42 23

2,3886

1,8 857

1,818

Fin nancial institution charges

42 22

5000

118 1

130

Ris sk management workshops

19 90

2559

190 1

259

1,48 82

1,2336

1,4 482

1,236

IT and a communiccations expen nse

67 72

7666

672 6

766

Oc ccupancy expe ense

84 41

7772

841 8

772

1,86 63

1,8005

1,2 258

1,180

Les ss: Reallocatio on to claims expense

(2,200 0)

(2,1000)

Oth her operating g expenses

13,14 41

12,8000

13,2 228

12,867

Superannuation contribution Oth her Employee benefit expen nse Depreciation exp pense ofessional servvices expense e Pro

Adv vertising and printing

Oth her expenses from ordinaryy activities

Society

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Note 12 Income Tax Group

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

Net profit before tax

41,317

18,948

21,060

13,613

Tax calculated at rate of 30%

12,395

5,685

6,319

4,084

(4,986)

(4,779)

(4,945)

(4,727)

7,426

919

1,391

(633)

De-recognition of income tax benefit

633

Impairment of investments per AASB 136

Rebateable dividend written off

203

Writeoff of Deferred Tax Asset (DTA) balance

154

Reinstatement of opening DTA balance

(1,154)

(2)

(1,149)

(33)

(210)

(26)

(216)

6,243

1,697

220

141

6,274

2,191

181

203

(284)

154

(33)

(210)

(26)

(216)

6,243

1,697

220

141

Deferred tax movement debited to equity

(209)

(184)

(209)

(184)

Tax charged to equity

(209)

(184)

(209)

(184)

Reconciliation between net profit before tax and tax expense

Tax effect of amounts which are not deductible/(taxable) in calculating taxable income: Net mutual (income)/expense Entertainment and other Fines and Penalties Adjusted Income Tax

Tax losses of prior years recouped Under (over) provision in previous year Tax charge for the year Income tax expense Charge for current tax payable Deferred tax movement Adjustments in respect of prior years Tax expense charged to statement of comprehensive income Tax charged to equity

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 No ote 13 Cash a and cash equivalents Group G

Cash at bank an nd on hand 11a am bank depo osits Total cash and cash equivallents

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

45,95 52

34,5223

35,8 861

14,865

5,60 00

4669

1,7 799

209

51,55 52

34,9992

37,6 660

15,074

Cash at bank an nd trust accoun nt earns intere est at a floating g rate. As at 30 3 June 2012 the average iinterest rate was w 3.51% (20 011: 4.7 79%). Over the e full year the weighted average interest rrate was 4.53% % (2011: 5.28 8%). No ote 14 Receiv vables Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

22,10 06

6,4113

22,1 106

6,413

1,34 49

1,2662

1,3 349

1,262

23,45 55

7,6775

23,4 455

7,675

6,4 445

1,144

6,4 445

1,144

7,6775

29,9 900

8,819

Pre emiums and s subscriptions receivable Receivables from m policyholderrs* PS SS adjustmentss receivable

Oth her receivablles Receivable from related entitie es

Total receivable es

23,45 55

*Re eceivables past due but nott considered im mpaired are; G Group $ 27,18 85 (2011: $30,513); Societyy $27,185 (201 11:$30,513): The e ageing analyysis of receiva able past due but not consid dered impaired d are as below w: 31-6 60 day ys $ 201 12

201 11

61-990 dayys $

Overr 91 da ays $

To otal $

Group p

27,185

Societty

27,185

Group p

30,513

Societty

30,513

Oth her balances w within receivab ble from policy y holders & PS SS adjustmen nts receivable do not containn impaired ass sets and are not n pas st due. It is exxpected that th hese other bala ances will be received when n due.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Note 15 Investments Group

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

977

49,762

46,871

44,463

41,887

49,762

47,848

44,463

42,864

Equity securities – listed entities

10,286

12,691

10,286

12,691

Fixed interest securities

17,988

15,774

17,988

15,774

28,274

28,465

28,274

28,465

Bank bills

19,699

21,698

Bank term deposits

93,386

73,267

Equity securities – listed entities

19,110

24,719

Fixed interest securities

38,879

40,737

171,074

160,421

Total investments

249,110

236,734

72,737

71,329

Current

192,243

180,222

54,749

55,555

56,867

56,512

17,988

15,774

249,110

236,734

72,737

71,329

Investments – ‘held-to-maturity’ Bank bills Bank term deposits

Investments – ‘available for sale’

Investments – ‘fair value through profit or loss’

Non-current Total investments

The weighted average interest rate for bank bills is 6.43 % (2011:5.81%) and the following table summarises the interest rate sensitivity (repricing profile) of the Group’s exposure to fixed interest securities based on earlier of contractual maturity or repricing. 2012 Avg rate

2012 $’000

2011 Avg rate

2011 $’000

Less than 12 months

One to two years

5.51%

6,920

Two to three years

3.45%

14,312

Three to four years

3.95%

13,952

5.40%

41,373

Four to five years

4.06%

18,204

5.35%

8,219

Over five years

3.78%

10,399

56,867

56,512

Maturity

Total fixed interest securities

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 No ote 16 Reinsu urance and otther recoverie es receivable e Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

7,68 88

4,8443

21,96 67

23,6771

29,65 55

28,5114

(2,354 4)

(4,5778)

6,116

6,1999

33,417

30,1335

1,82 27

2,8777

1,8 827

2,877

- from ROCS

87 8

1227

127

- from HCCS

14 47

2,4771

147 1

2,471

2,06 61

5,4775

2,0 061

5,475

Dis scounted to prresent value

(72 2)

(4558)

(72)

(4 458)

Pru udential Margin

66 64

9335

493 4

652

2,65 53

5,9552

2,4 482

5,669

6,10 03

5,6227

42,17 73

41,7114

2,4 482

5,669

6,24 49

8,8227

2,153

Non-current

35,92 24

32,8887

2,4 473

3,516

eceivable Total reinsurance and otherr recoveries re

42,17 73

41,7114

2,4 482

5,669

30,13 35

15,2887

6,06 62

14,7887

(83 3)

3,5662

Recoveries received during the year

(2,697 7)

(3,5001)

Carried forward

33,417

30,1335

5,95 52

7,1552

5,6 669

6,727

(2,098 8)

(7554)

(2,09 98)

(7 754)

Mo ovement in Pru udential Margiin

(271 1)

(3998)

(15 59)

(2 256)

Recoveries received during the year

(930 0)

(448)

(93 30)

( (48)

Carried forward

2,65 53

5,9552

2,4 482

5,669

Expected future e recoveries on o outstanding claims - from reinsurerss - from HCCS

Dis scounted to prresent value Pru udential Margin

Expected future e recoveries on o indemnity y obligations - from insurers a and reinsurers

Retirement claim m recoveries frrom ROCS Total reinsurance and otherr recoveries re eceivable Current

Mo ovement – outstanding cla aim recoverie es Bro ought forward Recognised in th he statement of o comprehens sive income (rrefer Note 7) Mo ovement in Pru udential Margiin

Mo ovement – ind demnity oblig gation recove eries Bro ought forward Recognised in th he statement of o comprehens sive income (rrefer Note 10)

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Note 17 Other assets Group

Deferred Master Policy expense Deferred ROCS expense Deferred Reinsurance premium Prepayments Quota Share Commission receivable Other Total other assets

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

31,460

9,493

1,448

17,857

306

4,125

3,238

3,826

1,080

961

26,974

3,912

32,846

10,540

Note 18 Plant and equipment Group

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

2,167

2,537

1,934

2,305

(1,628)

(1,846)

(1,469)

(1,717)

539

691

465

588

Carrying amount at 1 July 2011

691

857

588

830

Additions

140

136

139

Disposals

(70)

(3)

(70)

(3)

(222)

(299)

(192)

(273)

539

691

465

588

Plant and equipment – at cost Less: Accumulated depreciation Total plant and equipment Movements

Depreciation expense Carrying amount at 30 June 2012

Note 19 Payables Group

Related party payables Trade creditors Accrued Reinsurance expense

Note 27

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

31,510

1,996

176

511

176

17,863

125

159

ROCS levy payable

1,449

Net GST payable

4,402

3,171

4,455

2,348

Accruals

1,163

1,132

247

291

Professional fees payable

Other payables Total payables Payables are interest free and unsecured.

4,180

707

31,178

5,356

5,298

2,899

31,178

5,356

36,808

2,937

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 No ote 20 Outstanding claims s Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

92,88 80

102,2554

8,36 63

9,2003

101,24 43

111,4557

Dis scount to present value

(7,813 3)

(15,9225)

Dis scounted claim ms liability

93,43 30

95,5332

Pru udential margin (Refer Note e 20(c))

20,92 28

24,7443

114,35 58

120,2775

Current

18,72 26

17,9110

Non-Current

95,63 32

102,3665

114,35 58

120,2775

120,27 75

90,7331

- In ncurred claimss

15,78 86

41,0448

- Prudential P marrgin

(3,815 5)

9,3770

Cla aims paymentss during the year

(17,888 8)

(20,8774)

Carried forward

114,35 58

120,2775

vel of sufficien ncy (Refer Notte 3) Lev

92.5% %

92.55%

Pru udential margin as a percen ntage of the ne et discounted cclaims liability y

22.4% %

25.99%

(a) Outstanding g claims liabillity e Central estimate aims handling costs Cla

Total gross outtstanding claiims liability

Total gross outtstanding claiims liability (b) Movements Bro ought forward Recognised in th he statement of o comprehens sive income (rrefer Note 7)

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Note 20 Outstanding claims (contd.) (d) Claims development table - Group The following tables show the development of gross and net undiscounted outstanding claims relative to the ultimate expected claims for the nine accident years since incorporation of MIPSi. (i) Gross Accident year

Up to 2005 $’000

2006

2007

2008

2009

2010

2011

2012

Total

$’000

24,571

Estimate of ultimate claims cost: At end of accident year

29,165

13,380

20,647

27,130

26,560

25,488

35,975

One year later

24,180

12,551

16,275

20,092

29,734

22,525

29,838

Two years later

23,272

12,880

19,026

18,442

33,858

18,874

Three years later

20,656

14,950

14,008

18,930

27,401

Four years later

21,283

16,189

14,539

17,090

Five years later

23,391

18,448

14,465

Six years later

23,412

18,007

Seven years later

23,644

Eight years later

9,035

Current estimate of cumulative claims cost

23,628

18,007

14,465

17,090

27,401

18,874

29,838

24,571

173,874

Cumulative payments

(21,735)

(16,176)

(10,960)

(12,357)

(10,791)

(5,033)

(2,644)

(1,297)

(80,994)

Outstanding claims – undiscounted

1,893

1,831

3,505

4,733

16,610

13,841

27,194

23,274

92,880

Discount Claims handling costs

(7,813) 3,505

4,733

Prudential margin Total gross outstanding claims per the Statement of financial Position

8,363 20,928 114,358

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 No ote 20 Outstanding claims s (contd.) (ii) Net Accident year

Up to 2005 $’000

2006

2 007

200 08

2009

2010

2011

2012

To otal

$’000

$’ 000

$’00 00

$’000

15,942 1

Esttimate of ultimate claims cost: At end of accident year

23,685

12,168

18, 834

21,14 44

22,984

23,658

26,229

On ne year later

20,441

12,202

12, 795

18,05 52

25,383

20,044

23,380

Tw wo years later

20,748

10,789

16, 008

16,85 56

25,618

16,237

Thrree years later

16,163

12,260

11, 978

15,412

20,436

Fou ur years later

17,400

12,792

12, 259

14,316

Fiv ve years later

18,758

14,429

12, 091

Six x years later

18,750

13,867

Sev ven years late er

18,886

Eig ght years laterr

7,292

Current estimate e of cum mulative claim ms cost

18,876

13,867

12, 091

14,316

20,436

16,237

23,380

15,942 1

135,144

Cumulative paym ments

(18,180)

(13 3,948)

(9,9 915)

(11,443 3)

(9,673)

(4,819)

(2,644)

(1,297)

(71,9 919)

utstanding claims – Ou und discounted

696

(81)

2, 176

2,87 73

10,763

11,418

20,736

14,645 1

63,224

Dis scount

(5,4 459)

Cla aims handling costs

8,363

Pru udential margin

14,813

Total net outsta anding claims s

80,941

No ote 21 Other liabilities Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

Subscription inco ome received in advance

50,15 53

34,3114

50,1 153

34,314

Total other liabilities

50,15 53

34,3114

50,1 153

34,314

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Note 22 Provisions Group

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

1,228

2,090

1,228

2,090

447

5,486

447

5,486

Prudential margin

1,542

2,544

1,142

1,877

Discount to present value

(147)

(808)

(147)

(808)

3,070

9,312

2,670

8,645

Eligible retirement claims (subject to ROCS) (refer Note 2(a)(iii))

6,103

5,627

Employee entitlements (refer Note 1(i))

1,251

1,100

1,251

1,100

10,424

16,039

3,921

9,745

677

2,590

677

2,590

9,747

13,449

3,244

7,155

10,424

16,039

3,921

9,745

9,312

18,662

8,645

17,662

- net indemnity charge

(4,025)

(2,201)

(4,025)

(2,201)

- prudential margin

(1,003)

(1,058)

(734)

(725)

Indemnity payments made

(1,214)

(6,091)

(1,214)

(6,091)

3,070

9,312

2,672

8,645

Carrying amount at start of year

5,627

2,982

Increase (decrease) in estimate

476

2,645

Carrying amount at end of year

6,103

5,627

Provision for indemnity obligations (refer Note 1(i)) Incidents occurred but request yet to be received Outstanding requested indemnity

Total provisions Current Non-current Total provisions

Movements Provision for indemnity obligations Carrying amount at start of year Recognised in the Statement of comprehensive income (refer note 10)

Carrying amount at end of year

Provision for eligible retirement claims

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 No ote 23 Deferre ed tax (asset))/liability Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

(35 5)

(445)

(7)

(9)

(295 5)

(2661)

(29 95)

(2 261)

(2,508 8)

(2,7661)

Inv vestment revalluations

35 54

7111

(3 34)

( (12)

Inte erest receivab ble

30 08

3881

287 2

252

Div vidend receiva able

10 03

1001

Imp pairment of invvestments perr AASB 136

(95 5)

(1554)

(9 95)

(1 154)

49 94

7002

494 4

702

(1,674 4)

(1,3226)

385 3

553

(1,326 6)

(1,01 1)

553 5

431

Cre edited / charge ed to equity

(209 9)

1884

(20 09)

184

Adjjustment to op pening DTL/DT TA

(141 1)

(21 6)

(2 24)

(2 216)

(2883)

154

(1,674 4)

(1,3226)

385 3

553

34 40

7332

(10 09)

(1 149)

(As sset)/Liability tto reverse afte er 12 months

(2,014 4)

(2,0558)

494 4

702

Net deferred tax x (asset)/liabiility

(1,674 4)

(1,3226)

385 3

553

Am mounts recogn nised in profit or o loss Acc crual for auditt fees Pro ovision for employee entitlem ments Pro ovision for indirect claims ha andling costs

Am mounts recogn nised in equity Inv vestment revalluations Net deferred tax x (asset)/liabiility Mo ovements Op pening balance e at 1 July

Cre edited / charge ed to the State ement of comprehensive inccome Clo osing balance e at 30 June

(As sset)/Liability tto reverse with hin 12 months s

No ote 24 Share c capital and members’ m gua arantee Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

100,00 01

100,0001

100 1

100

Issued share cap pital Ord dinary shares – fully paid

The e Society is lim mited by share es and guaran ntee, having bo oth sharehold ders and general members. Me embers and Sh hareholders are not entitled to dividends. Each Genera al Member has one vote at a meeting of General G Me embers. The S Shareholders in a general meeting m appoin nt directors. If th he Society is w wound up the constitution states that eacch Member (otther than a Me ember who haas been a Form mer Member fo or mo ore than one yyear or an Hon norary Membe er) may be req uired to contriibute to the as ssets of the Soociety up to an n amount not exc ceeding $5 forr payment of the debts and liabilities of th he Society including the costs of the windiing up.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Note 24 Share capital and members’ guarantee (contd.) Number of members 2012

2011

Ordinary

21,999

21,303

Student

12,079

11,092

Total Members

34,078

32,395

Membership Category

Note 25 Key management personnel (a) Directors The names of persons who were directors of the Society at any time during the financial year are as follows: S Bitter, A T Browning, A A Fraser, L Rowe, K C D Roxburgh, C J Steadman, B E Taylor and R W L Turner. (b) Remuneration Key management personnel compensation for the years ended 30 June 2012 and 2011 is set out below. The key management personnel are: all the directors of the Society and the persons with the authority and responsibility for planning, directing and controlling the activities of the Society (A T Browning, W F Berryman and R J Miles). Group

Short-term benefits Post-employment benefits Total remuneration of key management personnel

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

1,778,443

1,640,916

1,347,537

1,333,716

384,411

363,909

240,448

252,286

2,162,854

2,004,825

1,587,985

1,586,002

(c) Other Transactions with Directors, Key Management Personnel, Director-related Entities and Key Management Personnelrelated Entities R W L Turner provides the Society with specialist medical indemnity claim services and medical practice category service. He is a member of various claims and membership committees. He is paid sessional fees on terms and conditions no less favourable to the Society than normal commercial terms and conditions. He received $143,000 (2011:$128,700) above his directors fees for this work. These amounts are included within note 25(b). C J Steadman provides the Society with specialist medical indemnity claim services and medical indemnity risk management services. He is paid sessional fees on terms and conditions no less favourable to the Society than normal commercial terms and conditions. He received $57,200 (2011: $56,766) above his directors fees for this work. These amounts are included within note 25(b). He was also was paid $7,725 (2011: $8,834) for conducting risk management workshops. This amount is not included within note 25(b).

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 No ote 26 Remun neration of au uditors Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

Audit of the finan ncial report

180,914

175,9119

63,7 762

61,903

Audit of regulato ory returns

67,66 61

65,6888

18,3 303

17,768

Oth her audit relate ed work

14,93 35

25,2118

14,9 935

24,720

Tax xation complia ance services

15,65 59

84,2002

1,0 050

30,300

279,16 69

351,0227

98,0 050

134,691

Ern nst & Young

Total remuneration of audito ors No ote 27 Related d parties Shareholding of the Society

MIP PS Holdings P Pty Ltd (“MIPS SH”) owns 100 0% (2011: 100 0%) of the issu ued ordinary shares of the S Society. As a shareholder, MIP PSH is not entitled to a divid dend or any surplus assets (except for the return of cap pital) in the evvent of a windiing up. Wh holly-owned G Group The e wholly-owne ed Group conssists of the So ociety and its w wholly-owned subsidiaries MIPS M Insurancce Pty Ltd (MIPSi), Qu ueensland Docctor’s Mutual Pty P Ltd (QDM)) and Professio ment Australia a Pty Ltd (PMA A). onal Managem Tra ansactions witth related partiies The e Group enterrs into transacctions with its subsidiaries, s a associates and d key manage ement personnnel in the norm mal course of bus siness. Transa actions are ca arried out on an arm’s length h basis. Detaills of significan nt transactionss carried out during the yearr with related partiies are as follo ows. All insurance covver is provided d to MIPS mem mbers as a me ember benefitt by MIPS in th he form of Mas aster and Grou up policies. Th he Society has a Ma aster Policy fo or insurance co over with its ssubsidiary MIP PS Insurance Pty P Ltd (“MIPS Si”). During the e year ended 30 Jun ne 2012 the S Society paid $3 31,329,495 (20 011: $30,238, 962) to MIPSii. MIP PSi pays the S Society a servvice fee for the e provision of sservice under a Service Lev vel Agreementt (“SLA”). During the year end ded 30 June 2 2012 the Socie ety received $3,200,000 $ inccluding $1,000 0,000 for the prior period (20011: $4,100,00 00) from MIPS Si. A further f fee of $ $6,300,000 (20 011: $1,000,000) is payable e by MIPSi to the Society re elating to the yyear ended 30 June 2012. QD DM pays the S Society a service fee for the provision of sservice under Service S Level Agreement (““SLA). During the year ende ed 30 June 2012 So ociety received d $156,000 (2 2011: $145,00 0). Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

6,4 445

1,144

31,7 714

Receivables MIP PS Insurance Pay yables Payable to MIPS S for Master Policy

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Note 28 Investments in subsidiaries Group

Society

2012 $’000

2011 $’000

2012 $’000

2011 $’000

MIPS Insurance Pty Ltd (“MIPSi”)

6,250

Professional Management Australia Pty Ltd (“PMA”)

250

Queensland Doctors’ Mutual Pty Ltd (“QDM”)

Total investment in subsidiaries

6,508

Country of incorporation

Class of Shares

Name of company

MIPS Insurance Pty Ltd (“MIPSi”) Professional Management Australia Pty Ltd (“PMA”) Queensland Doctors’ Mutual Pty Ltd (“QDM”)

Principal activity

Insurance

Ownership Interest 2012 %

2011 %

Australia

Ordinary

100

Australia

Ordinary

100

Australia

Ordinary

100

Dormant Medical defence organisation

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 No ote 29 Reconc ciliation of ne et profit to ne et cash inflow w from operatting activities s Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

35,07 74

17,2551

20,8 842

13,472

22 22

2999

192 1

273

1,79 93

(1,1556)

117 1

(459 9)

(16,2993)

3,1 187

1,058

(Inc crease)/decre ease in receiva ables

(15,780 0)

(5,8331)

(21,08 81)

(5,2 293)

(Inc crease)/decre ease in other assets a

(21,497 7)

3993

(22,18 88)

9,339

(117 7)

(3557)

(117)

(3 357)

(Inc crease)/decre ease in ROCS expense

(1,448 8)

Inc crease/(decrea ase) in accoun nts payable

25,82 22

(1,6003)

33,8 869

1,774

Inc crease/(decrea ase) in provisio ons

(5,614 4)

(6,5558)

(5,82 23)

(8,8 870)

Inc crease/(decrea ase) in outstan nding claims

(5,917 7)

29,5444

Inc crease/(decrea ase) in unearn ned premium

Inc crease/(decrea ase) in provisio on for tax payable

3,92 29

(4885)

206 2

(1 184)

Inc crease/(decrea ase) in provisio on for deferred d income tax

(348 8)

(31 5)

(16 68)

122

Inc crease/(decrea ase) in other liabilities

15,83 38

7,5557

15,8 839

7,557

Net cash inflow w/(outflow) fro om operating activities

31,49 98

22,4446

24,8 875

18,945

Net profit No on-cash items s Depreciation Net (gain)/loss o on investmentss Ch hanges in worrking capital (Inc crease)/decre ease in recove eries receivable e

(Inc crease)/decre ease in interesst receivable

No ote 30 Commiitments Group G

Society

2012 $’00 00

20111 $’0000

20 012 $’0 000

2011 $’000

Not later than on ne year

93 38

8999

938 9

899

Latter than one yyear but not latter than two ye ears

69 98

8334

698 6

834

Latter than two ye ears but not la ater than five years y

1,72 28

5883

1,7 728

583

Total commitme ents

3,36 64

2,3116

3,3 364

2,316

Op perating lease commitmentss payable:

The e Group has e entered into le eases for office e buildings. Th hese leases have an averag ge life of betwe ween two to thrree years with ren newal options included in the contracts. The e Group has n no capital com mmitments as at a Statement o of financial po osition date.

Medical Indemnity Protection Society Ltd and its subsidiaries Notes to the financial report (cont’d) For the year ended 30 June 2012 Note 31 Capital adequacy All insurance business is underwritten by MIPSi and hence the requirement to disclose capital adequacy information. The below capital adequacy information relates to MIPSi. 2012 $’000

2011 $’000

6,250

Retained earnings brought forward

75,121

71,590

Current year earnings

13,996

3,529

5,323

8,170

208

(2,134)

100,898

87,405

Less : deductions

(2,076)

(1,909)

Net Tier 1 capital

98,820

85,496

Total capital base

98,820

85,496

Minimum capital requirement

27,617

27,627

3.58

3.09

Paid-up ordinary shares

Technical provisions in excess of liability valuation (net of tax) Premium liability surplus / (deficit) (net of tax)

Capital adequacy multiple Technical provisions in excess of liability valuation

The liability required by GPS 110 for prudential reporting purposes differs from accounting purposes. As described in Note 1(h) the Company applies risk margins to the central estimate of net outstanding claims to achieve a level well above the 75% minimum as required by GPS 110. A summary of the level of sufficiency achieved by the prudential margin is disclosed in Note 3. Note 32 Contingent Liability (a) Legal proceedings: The Group operates in the insurance industry and is subject to legal proceedings in the normal course of business. While it is not practicable to forecast or determine the final results of all pending or threatened legal proceedings, management does not believe that such proceedings (including litigations) will have a material effect on the results of the Group or the Society and their financial position. (b) Guarantees: The Group has issued the following guarantees at 30 June 2012: i)

ii)

A bank guarantee of $85,000 (2011: $85,000) issued to McMullin Investments Pty Ltd in respect of rental bond for 15-31 Pelham St, Carlton, Victoria 3053 (Head Office of the Society). With effect from 25 July 2012, new bank guarantee is in place, issued to Sandhurst Trustees Ltd ACF Forza Pelham Street Fund. The property was sold during the year resulting in change in existing bank guarantee. A bank guarantee of $80,000 (2011: $80,000) issued to AMP Capital Investors Ltd in respect of rental bond for Suite 5.02, Level 5, 140 Arthur Street, North Sydney NSW (NSW office of the society)

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries otes to th he financiial report (cont’d) No For the year end ded 30 June 2012 No ote 32 Conting gent Liability y (contd.) iii) A bank guarrantee of $50,000 (2011: $5 50,000) issued d to BNY Trust Company of Australia Ltd (2011: J.P Mo organ Trust Australia Ltd d) in respect of o rental bond for Citilink Bussiness Centre e, 153 Campbe ell Street, Bow wen Hills, Qld (Qld office of the t Society, thiss will not be re enewed as office has moved d to new locatiion). iv) A bank guarrantee of $90,000 (2011: NIIL) issued to H A Bachrach (NOM) Pty Ltd d in respect off rental bond for f 5th Floor 67 6 Astor Terracce Spring Hill QLD 4000.(Ne ew QLD office e of the society y). No ote 33 Events s occurring affter balance date d No matters or cirrcumstances have h arisen since 30 June 2 2012 that have e significantly affected, or m may significanttly affect: (a) the Group or Society’s ope erations in futu ure years, or (b) the results off those operatiions in future years, y or (c) the Group or Society’s statte of affairs in future financia al years. No ote 34 Authorrisation of the e financial rep port The e financial rep port of the society for the year ended 30 JJune 2012 was s authorised fo or issue in acccordance with a resolution of o dire ectors on 24 O October 2012

Medical Indemnity Protection Society Ltd and its subsidiaries Director’s declaration For the year ended 30 June 2012 In accordance with a resolution of the directors of the Company, we state that: In the opinion of the directors: (a) the financial statements and notes of the Company are in accordance with the Corporations Act 2001, including: i) giving a true and fair view of the Company's financial position as at 30 June 2012 and of its performance for the year ended on that date; and ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; (b) the financial statements and notes also comply with International Financial Reporting Standards as disclosed in Note 1; and (c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

On behalf of the Board R W L Turner Director A T Browning Managing Director Melbourne 24 October 2012

MIPS Annual Reportt 2011/12

Medical In ndemnity y Protecttion Sociiety Ltd and its subsidiarries ent audito or’s reportt Independe For the year end ded 30 June 2012

Medical In ndemnity y Protecttion Sociiety Ltd and a its subsidiarries ent audito or’s reportt (contd.) Independe For the year end ded 30 June 2012

MIPS Annual Reportt 2011/12

Annual Report 2011/12 Medical Indemnity Protection Society Ltd ABN 64 007 067 281

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