Legal Practitioners’ Liability Committee 2011–12 Annual ... · The Digital Age The digital age...

Legal Practitioners’ Liability Committee 2011–12 Annual Report

Strong. Stable. Vigilant.

Serving the ProfessionThe Legal Practitioners’ Liability Committee has been insuring the legal practitioners of Victoria since 1986.

Pursuant to the Legal Profession Act 2004 LPLC is the insurer to law practices engaging in legal practice in Victoria. It is the successor body to the Solicitors’ Liability Committee.

The Solicitors’ Liability Fund became the Legal Practitioners’ Liability Fund in 1996.

The Fund is administered by the LPLC.

To engage in legal practice in Victoria, law practices must take out insurance with the LPLC.

The functions of the Committee are:• Toprovideprofessionalindemnityinsuranceto

law practices;• Toundertakeliabilityundercontractsof

professional indemnity insurance entered into with law practices;

• Anyotherfunctionsconferreduponitbythe Legal Profession Act 2004.

The LPLC also provides risk management services to law practices.

The LPLC has the power to enter into contracts or arrangements relating to insurance and reinsurance.

The LPLC is an independent body which reports to the Attorney-General and Minister for Finance of the State of Victoria.

1Legal Practitioners’ Liability Committee 2012 Annual Report

Contents

Chairman’s report 2

From the CEO 3

Claims – Solicitors 5

Claims – Barristers 6

Risk Management 7

Investments 9

Legal Practitioners’ Liability Committee and Management 10

LPLC Management 12

Organisational chart 13

Supplementary information 14

Financial Report for the year ended 30 June 2012

Statement of Comprehensive Income 18

Balance Sheet 19

Cash Flow Statement 20

Statement of Changes In Equity 21

Notes to the Financial Statements 22

Declaration by members of the Committee 40

Auditor General’s Report 41

2 Legal Practitioners’ Liability Committee 2012 Annual Report

Chairman’s reportIn this reporting year there have been some significant developments in our profession.

Commitment to management of professional risk must be a universal goal for all practices. We believe that this commitment has yielded very good results, particularly in this last reporting year where LPLC has experienced the lowest incidence of claims (when measured against the number of practitioners it insures) in its 26 year history.

This result is the culmination of a trend which has continued over the last 20 years.

The reward is that in real money terms, after allowing for inflation, the costs of claims has not increased in the long term. Certainly there are years where there are significant increases but the long term trend more or less tracks inflation.

Our claims experience, compared to our peers in Australia, is low, and this is reflected by a relatively low amount collected in premium by LPLC.

Practitioners can be proud of this favourable achievement. LPLC acknowledges the efforts made by the profession to help bring this about by its commitment to managing risk.

GlobalisationSome large law firms now have new names as a result of their relationships with global law practices. Those global practices have their origins in London, China and the United States.

These new relationships have occurred with great rapidity. They reflect the world view of Australia as not only being as an Asian hub, but of having a significant economy and market for legal services, no doubt in part, as a result of the world commodity boom.

It is difficult to imagine that when LPLC began in 1986, that it would insure Australian practices with global names and presence.

These developments highlight the range of practices LPLC insures – from these large firms with global names to 4,800 sole practitioners who practice as solicitors or barristers.

The issues arising from insuring such a diverse profession are as broad as the range of legal services provided. These include matters in the areas of conveyancing, small business, wills and estates, litigation, family and criminal law to very large multi-national transactions – particularly in the resources sector.

LPLC is aware however, of the impact of the patchwork economy which has developed and the challenges faced by all firms, regardless of size.

While many of the risks faced by small and large practices differ, there are some common themes. Such issues relate to how practices manage their engagements with their clients, how those retainers with their clients are defined, how effective communications are between the clients and the practitioners, and how transactions are documented.

The Digital AgeThe digital age has greatly assisted LPLC in many ways. Electronic communication and a comprehensive website enables the rapid spread of information and warnings.

It also has assisted in the collection of premium. During the reporting period, solicitors were able to arrange their insurance online and barristers embraced their online renewal arrangements for the second year.

This, together with the improved technology interface with the Legal Services Board database, meant that the insurance renewal was less labour intensive and allowed for a smoother renewal process for the 2012-13 year.

One of the more significant outcomes of the digital age is the likely introduction of electronic conveyancing. If agreement as to the appropriate allocation of risk between the stakeholders can be achieved, the project should deliver benefits.

I thank the Chief Executive Officer, Miranda Milne, Committee and the dedicated staff of the LPLC for their part in this good story.

Matt Walsh LPLC Chairman


The 2011-2012 year closed with an estimated cost of claims against solicitors of a little over $26M. This was an improvement on the 2010-2011 year (with an estimated cost of $31M).

The most significant development was the lowest incidence of claims and notifications since 1986. It was a similar story with the barristers, who had the lowest number of claims and notifications per thousand practitioners since LPLC began to insure them in 2005.

While this low incidence may be a reflection of slowing economic activity flowing through to fewer transactions, there does seem to be a case to claim that this continuing decrease in the incidence of claims is attributable to the risk management effort of the profession by practices, assisted by the LPLC.

There were also decreases in the estimated cost of earlier policy years. Those years improved as many claims were settled or disposed of at less than anticipated cost.

For barristers, the estimated cost of claims was similar to the last two policy years at a little over $1M.

Investment returns were affected by declining equity markets in the last quarter of the year, but the return for the fund remained in positive territory.

These factors contributed to strengthening of the Legal Practitioners’ Liability Fund.

Electronic conveyancingLPLC has been engaged with the Australian Registrars’ National Electronic Conveyancing Council (ARNECC) in making submissions about the proposal for national electronic conveyancing.

Under the scheme, practitioners who wish to become subscribers and participate in electronic conveyancing will be required to enter into a participation agreement. The agreement imposes a number of obligations on practitioners. LPLC submissions have been focused on a fair allocation of risk between the stakeholders to the project.

The eventual introduction of electronic conveyancing and anti-money laundering, will mean solicitors will have to engage in procedures for client identification and for confirming that clients have authority to instruct them.

National professionLPLC has continued to make submissions in relation to professional indemnity insurance to ensure that the legislation is consistent with the intention behind the national law, of retaining current professional indemnity insurance arrangements for lawyers.

I thank the LPLC team of claims lawyers, risk management lawyers, management team and support staff for their dedication and hard work.

From the CEO The reporting period saw many positive developments.

Miranda Milne Chief Executive Officer


SOLICITORS: COST OF PAID AND UNPAID CLAIMS 2005–2012 ($M)

5

10

15

20

25

30

35 Unpaid

Paid

11-1210-1109-1008-0907-0806-0705-06

PERCENTAGE COST OF CLAIMS BY AREA OF PRACTICE

PERCENTAGE NUMBER OF CLAIMS BY AREA OF PRACTICE

SOLICITORS: NUMBER OF OPEN AND CLOSED FILES 2005–2012

100

200

300

400

500

600 Closed

Open

11-1210-1109-1008-0907-0806-0705-06

Commercial 23%

Mortgage 7%

Family Law 6%

Wills & Estates 5%

Small Business 3%

Libel/Defamation 1%Miscellaneous 2% Lease 3%

Personal InjuryLitigation 6%

CommercialLitigation 19%

Property &Conveyancing 25%

Mortgage 25%

Commercial Litigation 11%

Family Law 3%Lease 3%Libel/Defamation 1%Miscellaneous 1%Small Business 2%Wills & Estates 3%

Personal Injury Litigation 5%

Property &Conveyancing 15%

Commercial 31%


Claims – SolicitorsThe decline in the incidence of claims and notifications has been a pleasing story.

When measured against the number of practitioners insured by LPLC, the incidence of claims and notifications received for every 1,000 practitioners was the lowest ever – 26 for every 1,000. This is to be contrasted with our worst year (1992) when the rate was 107.

The chart below illustrates this achievement.

The estimated cost of claims was lower than it had been for the 2010 – 2011 year, but higher than the cost of claims for earlier years, going back to 2004. While there will always be ups and downs in the estimated cost of claims when looked at on a year by year basis, over time the total cost of claims more or less tracks inflation.

The trend towards a decline in the number of claims and notifications to LPLC in recent years has been accompanied by active management of LPLC files, resulting in a swift rate of finalising files. For example, 85% of files opened in the 2009-10 year have been resolved, while 66% of files in the 2010-11 years have been resolved.

As in past years, most of the claims cost occurred in the areas of conveyancing, commercial, litigation and mortgage.

While there was a significant decrease in the cost of conveyancing claims in the reporting year, the number of conveyancing claims fell only slightly. There were fewer large claims in this practice area. Indeed, it is the improvement in conveyancing that has been significantly responsible for the decrease in the cost of claims from the 2010-2011 year.

Mortgage claims, while down in number, were a little higher in cost. What is disturbing in recent years has been the rise in the number of “Amadio” claims, where mortgagees claim they did not understand what there were doing when entering into third party mortgages where they were not the recipients of the borrowed money.

NUMBER OF CLAIMS AND NOTIFICATIONS PER ThOUSAND SOLICITORS

20

40

60

80

100

120

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


Claims – BarristersLPLC has now insured barristers for seven policy years.

The number of claims and notifications received in the 2011-2012 is the lowest number since LPLC began insuring barristers.

As in the case of claims and notifications for solicitors, files are swiftly finalised, with 82% of files finalised two years after the close of the 2009-10 year and 71% of files in the 2010-11 year within a year.

The estimated cost of claims from barristers again followed the pattern of recent years, in being a little over $1M.

The incidence of claims for barristers remains very low.

Not surprisingly, most claims and notifications arise out of litigation.

These claims most commonly arise out of settlements or where clients feel that they have not been adequately advised about the risks of litigation and their chances of success or failure.

BARRISTERS: COST OF PAID AND UNPAID CLAIMS 2005–2012 ($00,000)

0

4

8

12

16

20 Unpaid

Paid

2011-122010-112008-092007-082005-06

11-1210-1109-1008-0907-0806-0705-06

barristersBARRISTERS: NUMBER OF OPEN AND CLOSED FILES 2005–2012

Closed

Open

10

20

30

40

50Closed

Open

2011-122010-112009-10

2008-092007-08

2006-072005-06

11-1210-1109-1008-0907-0806-0705-06

barrister


Risk ManagementRisk Management continues its significant role within LPLC.

There was a comprehensive seminar program together with publications in the In Check newsletter, emergency bulletins, the Law Institute Journal and on the LPLC website.

Conferences and Seminars 2011 Risk Management Intensive – MelbourneThis was attended by 522 practitioners and was repeated over three days in July and August 2011.

Topics covered were:

• ThePersonal Property Securities Act 2009 (Cth) • Maximisingprofitabilitybyminimisingrisk• Buildingresiliencetostress• Ethicalissues• Risksarisingfromemailsandtechnology• Conveyancingconundrums

Once more the intensive was recorded and produced on a DVD which was this year given to attendees and available for sale again.

Country Risk Management Seminar Serieshalf day seminars were held in twelve country locations:

• Wangaratta • Shepparton• Bendigo • MtEliza• Warrnambool • Ballarat• Traralgon • Mildura• SwanHill • Horsham• Bairnsdale • Geelong

The seminar was comprised of three sessions:• PersonalPropertySecurities:Nowithasstarted• Thelifeandtimesofanengagement• Tocaveatornottocaveat

LIV Conferences and other SeminarsWorkshops and presentations were given at:

• LIVConferences• TheLeoCussenInstitute• TheCollegeofLaw• BaysideSolicitorsGroup• In-houseforanumberoflawfirms

Publications In Check NewsletterThe quarterly newsletter covered a range of topics, among which were:

• Energyefficiencydisclosureforcommercial and residential buildings

• GSThotlinequeries• AmendmentstotheSaleofLandAct• Actinginthepurchaseofabusiness• Stampduty• Farmdebtmediationprocess• Bushfireproneland• Lettersofdemand

BulletinsSignificant changes in the law were the subject of four bulletins:

• PersonalPropertySecuritiesAct. Three bulletins were issued, each in July 2011 and in January and March 2012

• ChangestotheSaleofLandActandtheeffecton contracts (amendments having been made through the Consumer Affairs Legislation Amendment (Reform) Act 2010

Both legislative changes presented challenges because of their uncertain commencement dates.


Law Institute ColumnThe LPLC’s risk management page appeared in each edition of the Law Institute Journal.

Topics included:• Owner/builderdangerzone• PersonalPropertySecuritiesAct• Mortgagefraud• Draftingwillsforcompositefamilies• Risksforpractitionersoncompanyboards• Actingforfriendsand/orfamily• Holdingtrustmoney• Retainermanagement• Supervision

Telephone enquiry serviceLPLC staff once again fielded a number of enquiries from practitioners. The LPLC welcomes telephone enquiries to assist the profession in avoiding risk.

LPLC GST hotlineDerry Davine assisted practitioners with the complex issues arising from the GST.

WebsiteThe website was continually updated with LPLC risk management publications and details of seminars. The material appearing on the website included:

• InCheckandLawInstituteJournalcolumnarchives

• Riskmanagementbooklets• QuestionsandanswersforGST• Bulletins• Detailsofriskmanagementseminars• VideopresentationaboutthePersonal Property

Securities Act 2009 (Cth)

CLEAALPLC risk managers continued to work with CLEAA (Continuing Legal Education Association of Australasia) and co-chaired the sub-committee organising the annual conference for this organisation.


Investments

After good gains in the 2010-2011 year, LPLC’s return on investment in the 2011-2012 year was affected by volatility in financial markets. The gloomy outlook in Europe and the United States affected equities markets particularly in the final quarter of the year.

While returns on equities were in negative territory, the exposure of the Legal Practitioners’ Liability Fund to direct property (through its investment in Dexus Wholesale Property Fund) and in term deposits, investment return was in positive territory at 1.5%.

During the reporting period the Committee’s managers were:

Australian EquitiesSolaris Investment ManagementIntegrity Investment Management

International EquitiesMFS (Massachusetts Financial Services) Investment

Management

PropertyDexus Wholesale Property Fund

CashCash was invested by way of term deposits with the ANZ Bank, Commonwealth Bank and Westpac.

JANA Investment Advisers continued as investment advisers to the LPLC.

INVESTMENT RETURN 2007–2012 (%)

ASSET ALLOCATION 2012 (%)

0

1

1

2

3

4

5

6

-1

0 11-1210-1109-1008-0907-08

AustralianEquities 25%

OverseasEquities 10%

Property 18%

Cash andterm deposits

47%


Legal Practitioners’ Liability Committee and Management

The LPLC:•Managesandconductstheaffairsofandis

responsible for the organisation and business of the LPLC.

• Providesprofessionalindemnityinsuranceforlawpractices.

• Determinesthetermsofandsubmitspoliciesof professional indemnity insurance for legal practitioners in Victoria for approval by the Legal Services Board.

•OverseesinvestmentoftheLegalPractitioners’Liability Fund.

• Developspolicyinrelationtonationalpracticeissues and professional indemnity insurance.

• Overseesimplementationofeffectiveriskmanagement for legal practitioners.

The Audit Committee comprised of Patricia Kelly (Chairman), Mary Radisich and Peter Fox.

The Audit Committee oversees:• financialreporting• internalriskandcontrolprocedures• actuarialandreservingfunctions• audit• reportingcompliance• corporategovernance• conductofaudits,bothinternalandexternal

finances and budgeting procedures

The Fund Investment Sub Committee, comprised of Peter Daly (Chairman), Matt Walsh, Geoff Rees and Miranda Milne.

The Sub Committee:• makesrecommendationstotheLPLCasto

benchmarks, asset classes and asset allocation• monitorsthefund’sinvestmentstrategies• makesrecommendationstotheCommittee

as to the appointment of fund managers and investment advisers

Committee Meetings

Audit Committee

Fund Investment Sub Committee

Eligible

Attended

Eligible

Attended

Eligible

Attended

Peter Daly 9 9 6 6

Peter Fox 9 9 4 4

Patricia Kelly 9 9 4 4

Miranda Milne 9 9 6 6

Mary Radisich 9 7 4 3

Matt Walsh 9 9 6 6

Geoffrey Rees 9 9 6 6


Matt Walsh Chairman

Matt Walsh was formerly a partner of Mallesons Stephen Jaques and was chairman of that firm from 1988 to 1990. On retirement in July 2000, he was appointed as Special Tax Counsel to Gadens Lawyers, specialising in commercial and taxation law.

Matt is a past president and life member of the Law Institute of Victoria and a past chairman of the Taxation Institute of Australia (Victorian Division). he is a director of several private companies and a member of the board of a public charitable fund.

Peter E Daly, AM Committee Member

Peter E Daly has a wealth of experience in the financial industry. he has been President as well as CEO of the Insurance Council of Australia. he is Chair of the Financial Services Compensation Scheme and formerly Chairman of Financial Ombudsman Service, AAMI Limited and was Managing Director of Norwich Winterthur Group Limited. Peter continues to hold a number of Directorships with private companies. he is also Chairman of Aioi Nissay Dowa Management Australia Pty Ltd and Aioi Nissay Dowa Insurance Co Limited. he is a former Deputy Chairman of the Zoological Parks & Gardens Board and the Federal Government Self Regulation Task Force and currently Chairman of Australian Landscape Trust.

In 2004, he was awarded the Order of Australia for services to the insurance industry and to the community, particularly through the advancement of alternative dispute resolution and consumer protection.

Peter Fox Committee Member

Peter Fox is a practising Barrister and a part time Senior Fellow of the Melbourne Law School. he has practised as a commercial lawyer for more than 30 years as a barrister, as a partner of Mallesons Stephen Jaques, as a senior counsel of the World Bank in Washington DC, and as an overseas service fellow of the Law Council of Australia assigned to the Monetary Authority of Singapore.

Patricia Kelly Committee Member

Tricia Kelly has extensive experience in the Financial Services Industry.MostrecentlysheworkedforSuncorp/AAMIwhere her role included Executive General Manager Strategy & Business Development Personal Insurance and General Manager AAMI New South Wales. Prior to that she was a Director & Executive General Manager Life & Superannuation of Norwich Union Life Australia.

Tricia is a past president and honourary life member of the Insurance Institute of Victoria and a former Director of the Australian Insurance Institute. She is currently a Director of RACV Limited and subsidiary companies.

Miranda Milne Executive Member

Miranda Milne was solicitor to the Committee until 1986 and has been CEO since 1996.

Prior to her appointment to the Committee, Miranda engaged in private practice, specialising in litigation and professional indemnity insurance.

She is a member of the executive committee of the Trinity College Foundation.

Geoffrey Rees Committee Member Geoff is a graduate from Melbourne University in law and commerce and is a Law Institute of Victoria accredited business law specialist. he is one of the founding partners of the JRT Partnership.

With a broad commercial and litigation experience, Geoff regularly advises and presents to institutions and their controlled entities on operational risk management strategies.

he is a member of the Uniseed Board, a $60M pre-seed fund of Australian Super and three of the leading research universities. The fund invests in research outcomes from the institutes, and manages the early stages of the commercialisation of that research. he is also Secretary of the Australian Academy of Technological Sciences and Engineering.

Mary Radisich Committee Member

Mary Radisich is a Financial Councillor with Southern Peninsula Community Information Centre, and previously at Casey Cardinia Legal Service.

She is an experienced mediator and has extensive experience advocating for consumers in the financial services industry, and in community affairs.

She has been manager of the Dispute Settlement Centre of Victoria. her community involvement has included being a Councillor of the City of Knox and a Member of the Board of the Angliss hospital.

She has also been a member of the Financial and Consumer Rights Council of Victoria for many years.

Legal Practitioners’ Liability Committee and Management


Miranda Milne Chief Executive Officer

The Committee began its operations in January of 1986. Miranda Milne was solicitor to the Committee from May 1986 until October 1996 and has been the Chief Executive Officer since that time.

She previously worked in private practice in the area of insurance litigation, particularly professional indemnity insurance.

Justin Toohey Deputy Chief Executive Officer

Justin joined the Committee in 2005 from IBL Ltd where he was employed for four years as National Claims & Risk Manager with the professional indemnity scheme run by the Royal Australian Institute of Architects.

Prior to 2001, Justin was a partner with Tress Cocks & Maddox specialising in professional indemnity litigation, and was a panel solicitor to the Committee conducting the defence of claims against members of the profession for more than 10 years.

Alex Macmillan Claims Solicitor

After 17 years in private practice, specialising in insurance litigation, Alex Macmillan joined the Committee on secondment as a partner from Lander & Rogers. She subsequently joined the Committee staff permanently in 1994.

Bronwyn hine Claims Solicitor

Bronwyn joined the Committee in 2006 from the Melbourne office of specialist insurance firm Moray & Agnew.

In the 10 years prior to joining the LPLC, Bronwyn worked in private practice in Victoria and South Australia as a professional indemnity solicitor.

heather hibberd Risk Manager

heather practised as a solicitor for eight years in Insurance Litigation at Minter Ellison specialising in professional indemnity litigation before joining the Committee on secondment in 1999. She became a permanent member of staff in 2001.

Richard Antill Risk Manager

Prior to joining the LPLC, Richard was a barrister at the Victorian Bar for seven years. he practised in general commercial litigation with specialities in property matters and solicitor-client disputes.

Matthew Rose Risk Manager

Matthew joined the LPLC after working in risk management roles with the London office of global law firms Clifford Chance and Mayer Brown. Previously, Matthew practised as a Senior Associate in Minter Ellison’s commercial litigation group.

Peter Richards Chief Financial Officer

Peter joined the Committee as Chief Financial Officer in December, 2003. he previously worked in the Retail Industry where he held senior accounting positions with Myer and more recently Daimaru.

Peter manages the Accounting, Finance and Payroll functions.

Bernadette Mallia Office Manager

After working in solicitors firms both as a personal assistant and a conveyancing clerk, Bernadette joined the Committee in 1988.

The Committee also employs four personal assistants, one receptionist and an insurance manager. The Committee outsources its information technology and actuarial services.

LPLC Management


Organisational chart

AUDIT COMMITTEEPatricia Kelly Chairman

Peter Fox

Mary Radisich

RISK MANAGEMENTheather hibberd

Richard Antill

Matthew Rose

CLAIMSAlex Macmillan

Justin Toohey

Bronwyn hine

ADMINISTRATIONBernadette Mallia

Terri Twining

FINANCEPeter Richards

PERSONAL ASSISTANTSJenny Aitken

Jackie Miller

Kelly Cooper

Barbara McKay

RECEPTIONISTInge Gallery

COMMITTEEMatt Walsh Chairman

Peter Daly

Peter Fox

Patricia Kelly

Miranda Milne

Mary Radisich

Geoff Rees

ChIEF EXECUTIVE OFFICERMiranda Milne

DEPUTY ChIEF EXECUTIVE OFFICERJustin Toohey

REMUNERATION & EMPLOYMENT COMMITTEEMatt Walsh

Patricia Kelly

FUND INVESTMENT SUB-COMMITTEEPeter Daly Chairman

Matt Walsh

Miranda Milne

Geoff Rees


Supplementary information

Legislation administered by the CommitteeThe Legal Practice Act 1996 – 1st July, 2005 – 11th December, 2005

The Legal Profession Act 2004 – 12th December, 2005 to 30th June, 2012.

Financial management regulationsThe information specified in the Financial Management Regulations has been prepared and is available on request to the Attorney General, Members of Parliament and the public.

Whistleblowers policy statementPolicyThe LPLC is committed to the objectives of the Whistleblowers Protection Act 2001 (the WP Act). The LPLC recognises the value of transparency and accountability and will support the making of any disclosures pursuant to the guidelines set out in the WP Act, but subject to section 246 of the Legal Practice Act 1996 and section 6.6.13 of the Legal Profession Act 2004.

Compliance with the Building Act 1993The LPLC does not own any buildings and consequently is exempt from notifying its compliance with the building and maintenance provisions of the Building Act 1993.

Categories of documents held by the LPLC• applicationsbylegalpractitionersforinsurance• assessmentnotices• notificationsbylegalpractitionersofclaimsor

circumstances likely to give rise to claims• boardpapersminutesforLPLCandLPLCsub

committees• managementrecords• administrationrecords• accountingrecords• librarymaterial

Freedom of InformationThe LPLC has received no requests pursuant to the Freedom of Information Act 1982 for the reporting period,

PublicationsThe LPLC continues to publish relevant information on its website www.lplc.com.au

Occupational health & safetyThe Committee has continued its commitment to Oh&S compliance during the reporting period.

A staff member has been trained as a first aid officer.

All issues relating to safe work place practices are considered and reported at staff meetings. There were no reported Oh&S related incidents in the reporting year.

Workforce DataThe Committee undertakes an annual performance appraisal and salary review of the Chief Executive Officer. The Chief Executive Officer conducts an annual performance review of all other staff members.

Staff members are able to raise issues privately with the CEO and Office Manager at any time. Alternatively, matters can be raised with the Committee.

2010/11

Position Male Female TotalChief Executive Officer 1 1Chief Financial Officer 1 1Claims Manager 1 2 3Risk Manager 2 1 3Office Manager 1 1Insurance Manager 1 1Receptionist/PA 4 4TOTAL 4 10 14

2011/12

Position Male Female TotalChief Executive Officer 1 1Chief Financial Officer 1 1Claims Manager 1 2 3Risk Manager 2 1 3Office Manager 1 1Insurance Manager 1 1Receptionist/PA 5 5TOTAL 4 11 15


Environmental issuesIn July 2009 the Legal Practitioners’ Liability Committee registered with Sustainability Victoria to develop an environmental management plan. This plan assists the LPLC to manage the environmental impact from its day to day business activities.

Committee staff attended a series of workshops held through Sustainability Victoria’s Resource Smart Government program.

Each area of the Committee’s business was assessed to see where energy was used and resources consumed and how this could be reduced. The task of monitoring this EMP has been allocated to a team within the office.

The plan covers the 2011-2012 reporting year.

Energy consumptionThe energy usage for 2011-2012 decreased by approximately 9.5%on10/11yearand20%onthe09/10year.Thisreductionis due to the policies implemented by the LPLC such as using natural light in offices where possible, shutting down computers and printers after hours and only having lights on in the parts of the office where necessary.

The LPLC made a commitment to purchase no less than 20% green power for office requirements which contributed to a reduction in greenhouse gas emissions of more than 10.2 tonnes of carbon over the 2011-2012 reporting period.

Totalenergyusage38,835kWh.(2011/201142,980)kWhofenergyusedperunitofofficearea62.13.(2010/201169.32)kWhofenergyusedperFTE2773.(2010/20113070)

The 2011-2012 target set by the LPLC to reduce its greenhouse gas emissions by 20% by June 2012 compared with the 2009-2010 baselinedatawasmet.The2012/2013targetistoreducethegreenhouse gas emissions by a further 10%.

Waste generationThe LPLC continues to monitor the levels of waste generated by its operations and staff. Building management introduced a commingled recycling service which has assisted greatly in the reduction of waste generated by the LPLC sent to landfill.

The LPLC continues to reduce waste generation through recycling of all computer components, CDs, DVDs, used printer cartridges, old dictating equipment, old mobile phones, old landline phones and any other computer peripherals by using a not for profit recycling service, Byte Back.

The 2011-2012 targets to reduce waste to landfill by 10% by June 2012 compared with the 2009-2010 base data was met. The LPLC also increased the proportion of waste it recycles to close to 90% for the reporting period.

Paper consumptionThe LPLC had a slight increase in its paper consumption over the reporting period but still had a reduction of 7.5% compared with the 2009-2010 baseline. The reason for the increase in the paper consumption was the LPLC’s decision to produce risk management material in house rather than out sourcing. The policies adopted by the LPLC in purchasing only printers that are capable of double sided copying, defaulting all communal printers to double sided and using electronic documents instead of paper whenever possible are still policies which are very much adhered to.

A very high percentage of the LPLC’s paper and cardboard waste is recycled through a secure paper recycling contractor. The LPLC recycled 0.84 tonnes of paper in the reporting period which contributed to a reduction in greenhouse gas emissions of more than 1.2 tonnes of carbon over the 2011-2012 reporting period.

UnitsofpaperusedperFTE(A4reams/FTE)21.13.

Unfortunately the 2011-2012 target to reduce paper consumption by 20% by June 2012 compared with the 2009-2010 baseline was not met. The target for the 2012-2013 year is to reduce the paper consumption by 10% compared to the 2011-2012 baseline, taking into account the increase in producing risk management material in house.

TransportThe LPLC does not operate a fleet of vehicles for business use.

The LPLC has a travel policy which includes the purchase of carbon credits for all air travel undertaken.

Competition policyUntil 11th December, 2005 Section 227A of the Legal Practice Act provided -

“ For the purposes of the Trade Practices Act 1974 of the Commonwealth and Competition Code, the entering into and performance of a contract of professional indemnity insurance by a person or firm and the Liability Committee under section 224, 225, 226 or 227 is authorised by this Act.”

From 12th December, 2005 section 3.5.5 of the Legal Profession Act 2004 provides –

“ For the purposes of the Trade Practices Act 1974 of the Commonwealth and Competition Code, the entering into and performance of a contract of professional indemnity insurance by a law practice and the Liability Committee under this Part is authorised by this Act.”


ConsultantsThe Committee engages a number of external consultants each year to provide specialist advice to assist the Committee with decision making and risk management programs. During 2011/2012totalconsultancyexpenditure(asdefinedbytheFinancial Management Act 1994) was approximately $286,729.

Taylor Fry – Actuaries Taylor Fry is the Committee’s actuary. The project fee approved for the reporting period was $120,000. The expenditure for the reporting period was $79,695. Taylor Fry has been retained as theCommittee’sactuaryforthe12/13reportingperiod.

Cumpston Sarjeant – Actuaries The Committee also obtains actuarial advice from Cumpston Sarjeant. The consulting fee paid to this firm for the reporting period was $39,030. Cumpston Sarjeant has been retained for the12/13reportingperiod.

Derry Davine – ConsultantDerry Davine is the consultant used for the Committee’s GST hotline. The expenditure for the reporting period was $36,920.

JANA Investment Advisers Jana is the Committee’s Fund Administrator. The project fee approved for the reporting period was $120,000. The expenditure for the reporting period was $120,000. Jana has been retained as theFundAdministratorforthe12/13reportingperiod.

Contact detailsLegal Practitioners’ Liability CommitteeLevel 31, 570 Bourke Street MELBOURNE VIC 3000ABN: 45 838 419 536

Telephone: (03) 9672 3800Fax: (03) 9670 5538

DX 431

Website: www.lplc.com.au

Supplementary information


Financial report for the year ended 30 June 2012 Legal Practitioners’ Liability Fund ABN 45 838 419 536


Statement of Comprehensive Income for the Financial Year ending 30 June 2012

Note 2012 $

2011 $

UNDERWRITING

Premium revenue 25 26,504,103 25,133,992

Outwards reinsurance expense (1,147,068) (1,147,258)

Net earned premiums 25,357,035 23,986,734

Claims expense (15,302,683) (27,433,282)

Net claims incurred 26 (15,302,683) (27,433,282)

Movement in unexpired risk liability 27 (1,927,878) 1,990,042

UNDERWRITING RESULT 8,126,474 (1,456,506)

Investment income 3 3,123,559 17,489,874

Other income 166,551 172,876

Other expenses 7 (4,527,305) (4,297,144)

Profit / (Loss) attributable to the Legal Practitioners Liability Fund 6,889,279 11,909,100

Other Comprehensive Income Nil Nil

Total Comprehensive Income 6,889,279 11,909,100

Notes to and forming part of these financial statements are set out on pages 22 to 39.

19Legal Practitioners’ Liability Committee 2012 Annual ReportLegal Practitioners’ Liability Committee 2011 Annual Review19

Balance Sheetas at 30 June 2012

Note 2012 $

2011 $

Current Assets

Cash and cash equivalents 23,450,315 24,500,343

Receivables 4 2,326,033 1,812,558

Other financial assets 5 71,266,666 64,600,933

Prepayments 156,790 104,610

Total Current Assets 97,199,804 91,018,444

Non-Current Assets

Other financial assets 5 105,782,299 107,084,408

Property, plant & equipment 6a 75,874 115,603

Intangibles 6b - 5,699

Total Non-Current Assets 105,858,173 107,205,710

TOTAL ASSETS 203,057,977 198,224,154

Current Liabilities

Outstanding claims liability 28 28,704,000 30,516,000

Payables 8a 987,853 727,353

Unearned premium liability 8b 38,087,000 35,377,000

Provisions 9 367,673 322,780

Total Current Liabilities 68,146,526 66,943,133

Non-Current Liabilities

Outstanding claims liability 28 51,134,000 54,383,000

Provisions 9 1,883 11,732

Total Non-Current Liabilities 51,135,883 54,394,732

TOTAL LIABILITIES 119,282,409 121,337,865

NET ASSETS 83,775,568 76,886,289

EQUITY

Accumulated funds 10 83,775,568 76,886,289

TOTAL EQUITY 83,775,568 76,886,289

Notes to and forming part of these financial statements are set out on pages pages 22 to 39.


Cash Flow Statementfor the Financial Year ending 30 June 2012

Note 2012 $

Inflows/(Outflows)

2011 $

Inflows/(Outflows)

CASH FLOWS FROM OPERATING ACTIVITIES

Premium revenue received 30,029,329 29,594,526

Other Income 164,759 238,078

Dividend Received 1,849,668 1,849,669

Interest Received 4,149,313 4,071,104

Other Income from Investments 3,035,440 5,090,535

Claims paid (21,449,810) (24,611,964)

Outwards reinsurance premium paid (1,147,068) (1,147,258)

Payments to suppliers and employees (5,889,391) (5,774,022)

NET CASH PROVIDED BY OPERATING ACTIVITIES 2(b) 10,742,240 9,310,668

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of property, plant & equipment (11,553) (44,512)

Purchase of investments (5,114,982) (5,418,010)

NET CASH PROVIDED BY/(USED IN) INVESTING ACTIVITIES (5,126,535) (5,462,522)

NET INCREASE IN CASH HELD 5,615,705 3,848,146

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 89,101,276 85,253,130

CASH AND CASH EQUIVALENTS AT END OF PERIOD 2(a) 94,716,981 89,101,276

Notes to and forming part of these financial statements are set out on pages 22 to 39.


Statement of Changes In Equityfor the Financial Year ended 30 June 2012

Note Accumulated Funds

$

Total

$

At 30 June 2010 64,977,189 64,977,189

Comprehensive result for the year 11,909,100 11,909,100

At 30 June 2011 76,886,289 76,886,289

Comprehensive result for the year 6,889,279 6,889,279

At 30 June 2012 83,775,568 83,775,568

Notes to and forming part of these financial statements are set out on pages 22 to 39


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Preparation

The financial report is a general- purpose financial report, which has been prepared in accordance with the requirements of the Australian Accounting Standards and the Financial Management Act (1994).

The financial report is prepared in accordance with the fair value basis of accounting with certain exceptions as described in the accounting policies below.

The financial report is presented in Australian dollars.

(b) Statement of Compliance

The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board.

A number of Australian Accounting Standards, which have been issued or amended and are not yet effective have not been adopted for the annual reporting period end 30 June 2012. Their details are disclosed below.

Standard Interpretation Summary Applicable for annual reporting periods beginning on

Impact on public sector financial statements

AASB 9 Financial Instruments This standard simplifies requirements for the classification and measurement of financial assets resulting from Phase 1 of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement ( AASB 139 Financial Instruments: Recognition and Measurement).

1-Jan-13 Detail of impact is still being assessed.

AASB 13 Fair Value This standard outlines the requirements for measuring the fair value of assets and liabilities and replaces the existing fair value definition and guidance in other AASs. AASB 13 includes a “fair value hierarchy” which ranks the valuation technique inputs into three levels using unadjusted quoted prices in active markets for identical assets or liabilities; other observable inputs; and unobservable inputs.

1-Jan-13 This Standard is not expected to have any significant impact on entity reporting.

AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (AASB 1,3,4,5,7,101,102, 108,112,118,121,127,128, 131,132,136,139,1023 and 1038 and Interpretations 10 and 12)

This Standard give effect to consequential changes arising from the issuance of AASB 9.

1-Jan-13 No significant impact is expected from these consequential amendment on entity reporting.

AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (AASB 1,3,4,5,7,101,102,108, 112,118,120,121,127,128,131, 132,136,137,139,1023 & 1038 and Interpretations 2,5,10,12,19 & 127)

These consequential amendments are in relation to the introduction of AASB 9.

1-Jan-13 No significant impact is expected from these consequential amendment on entity reporting.

(c) Premium

Premium revenue comprises amounts charged to solicitors and barristers, excluding amounts collected on behalf of third parties, principally stamp duties and goods and services tax.

Premium revenue is recognised in the Statement of Comprehensive Income when it has been earned. Premium revenue is recognised in the Statement of Comprehensive Income from the attachment date over the period of the contract.

The proportion of premium received or receivable not earned in the Statement of Comprehensive Income at the reporting date is recognised in the Balance Sheet as an unearned premium liability.

Notes to the Financial Statementsfor the year ended 30 June 2012


(d) Outwards Reinsurance

Premium paid to reinsurers is recognised as an expense in accordance with the expected pattern of risk. Where applicable, a portion of outwards reinsurance premium is treated at the reporting date as a prepayment. Reinsurance recoveries are recognised as revenue for claims incurred.

The Legal Practitioners Liability Fund carries a stop loss insurance policy to cover the payment of total claims made during the year ended 30 June 2012 in excess of $42.5m (2011:$42.5m)

(e) Outstanding Claims Liability

The liability for outstanding claims is measured as the central estimate of the present value of expected future payments against claims made at the reporting date under general insurance contracts issued by the fund, with an additional risk margin to allow for the uncertainty in the central estimate.

Claims handling costs include costs that can be associated directly with individual claims, such as legal and other professional fees and other costs that can only be indirectly associated with individual claims, such as claims administration expense.

The expected future payments are discounted to present value using a risk free rate.

A risk margin is applied to the outstanding claims liability, net of reinsurance and other recoveries, to reflect the inherent uncertainty in the central estimate of the outstanding claims liability

(f) Unexpired Risk Liability

At each reporting date the fund assessed whether the unearned premium liability is sufficient to cover all the expected future cash flows relating to the future claims against current insurance contracts. This assessment is referred to as the liability adequacy test.

If the present value of the expected future cash flows relating to future claims plus the additional risk margin to reflect the inherent uncertainty in the central estimate exceeds the unearned premium liability less any related intangible assets and deferred acquisition costs then the unearned premium liability is deemed to be deficient. The fund applies a risk margin to achieve the same probability of sufficiency for future claims as is achieved by the estimate of the outstanding claims liability, see note 1(e)

The entire deficiency , gross and net of insurance, is recognised immediately in the Statement of Comprehensive Income. The deficiency is recognised first by writing down any related intangible assets and then related deferred acquisition costs, with any excess being recorded in the balance sheet as an unexpired risk liability

(g) Property, Plant and Equipment & Intangibles

Plant and equipment is stated at cost less accumulated depreciation and any impairment in value.

Intangibles -This is the cost of production of training films recorded onto DVDs for use in presentations to management of legal firms. Their anticipated useful life is three years.

Impairment

The carrying value of plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

If such an indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.

The recoverable amount of plant and equipment is the greater of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Impairment losses are recognised in the Statement of Comprehensive Income.


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED


Depreciation and Amortisation

Furniture and equipment is depreciated on a straight line or diminishing value basis over their useful life to the Fund commencing from the time the assets are held ready for use.

Intangibles are amortised on a straight line or diminishing value basis over their useful life to the Fund commencing from the time the assets are held ready for use.

The depreciation rates used are:

Class of Asset Prime Cost Depreciation Rate Diminishing Value Depreciation Rate Furniture and equipment 20-40% 15-33%

Leasehold Improvements 20%-25% n/a

Intangibles 33% n/a

(h) Employee Benefits

Provision is made for the Fund’s liability for employee benefits arising from services rendered by employees to balance date.Employee benefits expected to be settled within one year together with entitlements arising from wages and salaries and annual leave which will be settled after one year, have been measured at the amounts expected to be paid when the liability is settled plusrelated on-costs. Other employee benefits have been measured at the present value of the estimated future cash outflows to be made for thoseentitlements.

Contributions are made by the Fund to an employee superannuation fund and are charged as expenses when incurred.

(i) Cash and cash equivalents

For the purpose of the cash flow statement, cash includes cash on hand, bank bills, at call deposits with banks or financial institutions and investments in money market instruments maturing within less than twelve months, net of bank overdrafts.

(j) Goods and Services Tax (GST)

Revenues and expenses are recognised net of the amount of GST, except where the amount of GST is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of the item of expense. Receivables and payables in the Balance Sheet are shown inclusive of GST.

(k) Other Financial Assets

For financial assets that are held for trading or designated at fair value through the profit or loss, the net gain or loss is calculated by taking the movement in the fair value of the financial gain and this gain or loss is recognised in the profit or loss.

Net market values have been determined as follows:

1. Units in managed equity funds by reference to the unit redemption price at the end of the reporting period as determined by the respective constitutions governing each fund.

2. Units in a managed property fund by reference to unit redemption price at the end of the reporting period which is 98% of the current asset value which has been the basis of recent sales.

(l) Asset backing general insurance liabilities

As part of its investment strategy the fund actively manages its investment portfolio to ensure that the investments mature in accordancewith the expected pattern of future cash flows arising from general insurance liabilities

With the exception of property plant and equipment, the fund has determined that other financial assets are held to back general insurance liabilities and their accounting treatment is described in note 1(k). As these assets are managed under the fund’s Risk Management Statement on a fair value basis and are reported to the Committee on this basis, they have been valued at fair value through profit or loss.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED



(m) Derecognition of financial assets and financial liabilities

(i) Financial Assets

A financial asset (or, where applicable, a part of a financial asset or part of a group or similar assets) is derecognised when:

- the right to receive cash flows from the asset have expired;

- the fund retains the right to receive cash flows from the asset but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or

- the fund has transferred its rights to receive cash from the asset and either (a) has transferred substantially all the risk and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

(ii) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

(n) Income Tax

The Fund is exempt income tax pursuant to item 5.2 of section 50-25 of the Income Tax assessment Act 1997.

(o) Claims Expense

Claims expense recognises the estimated cost of claims incurred for the current year, less or plus any adjustment for the improvements/deterioration in prior policy/accounting years.

(p) Investment Income

Investment income is accrued and includes capital movements, distributions and interest income. Any investment income relating to the current period that is not received during the accounting year is accrued to that accounting year.

(q) Receivables

Income accrued on term deposits during the accounting year but not paid until after the accounting year are treated as receivables.

Excesses payable, by insureds on terms, and costs recoveries are also included.



2012 $

2011 $

2. RECONCILIATION OF CASH AND CASH EQUIVALENTS

For the purposes of the statement of cash flows, cash and cash equivalents includes cash on hand and in banks, bank bills and investments in term deposits. Cash and cash equivalents at end of the financial year as shown in the cash flow statement is reconciled to items in the Balance Sheet as follows:

2 (a) Cash and Cash Equivalents 23,450,315 24,500,343

Cash Trusts & Deposits 71,266,666 64,600,933

94,716,981 89,101,276

2 (b) Reconciliation of Operating profit for the year to the net cash flows from operations.

Operating profit 6,889,279 11,909,100

Depreciation 56,981 85,021

(Profit)/Lossonsaleofproperty,plant&equipment - -

(Profit)/Lossoninvestmentsrealisedduringyear - -

Changes in net market value of investments 6,417,089 (6,038,325)

Net present value adjustment to outstanding claims 4,018,000 (846,000)

Insurance Recovery recognised - -

Unexpired Risk Liability 1,927,878 (1,990,042)

Change in assets and liabilities

Increase/(Decrease)inprovisionforlongserviceandannualleave 35,044 56,112

(Increase)/Decreaseinreceivables&prepayments (565,655) (292,649)

Increase/(Decrease)increditors 260,502 (121,591)

Increase/(Decrease)inpremiumsreceivedinadvance 782,122 1,750,042

Increase/(Decrease)inclaimsoutstanding (9,079,000) 4,799,000

Net cash and cash equivalents provided by operating activities 10,742,240 9,310,668

2 (c) The fund has no credit standby arrangements or loan facilities (2011: Nil)

3. INVESTMENT INCOME

Net fair value gains on financial assets at fair value through profit or loss (6,417,089) 6,038,325

Other Income 2,940,048 5,136,695

Dividend Income 2,030,505 1,849,669

Interest Income 4,570,095 4,465,185

3,123,559 17,489,874

4. RECEIVABLES

CURRENT

Deductibles Receivable & Cost Recovery 33,047 22,480

Accrued Income 2,292,986 1,790,078

2,326,033 1,812,558



2012 $

2011 $

5. OTHER FINANCIAL ASSETS

CURRENT

Cash Trusts, Bank bills & Term Deposits 71,266,666 64,600,933

71,266,666 64,600,933

NON CURRENT

Unquoted Unit Trusts

- Overseas Equities 20,753,158 20,173,278

- Property Fund 35,840,411 32,731,698

- Australian Equities 49,188,730 54,179,432

105,782,299 107,084,408

NON - FINANCIAL ASSETS

6a PROPERTY, PLANT AND EQUIPMENT

Furniture & equipment:

At Cost 296,857 285,304

Accumulated depreciation (245,539) (210,832)

51,318 74,472

Leasehold Improvements:

At Cost 75,849 75,849

Accumulated depreciation (51,293) (34,718)

24,556 41,131

Total 75,874 115,603

6b INTANGIBLES

Training Materials:

At Cost 102,412 102,412

Accumulated Depreciation (102,412) (96,713)

Total - 5,699

DEPRECIATION

Furniture & equipment 34,707 34,312

Leasehold improvements 16,575 16,575

Intangibles 5,699 34,134

56,981 85,021



PROPERTY, PLANT AND EQUIPMENT CONTINUED

Movements in Carrying Amounts:

Movement in the carrying amounts for each class of non-current assets between the beginning and end of the current financial year.

2012 Furniture Equipment

$

Leasehold Improvements

$

Intangibles $

Total $

Balance at the Beginning of the year 74,472 41,131 5,699 121,302Additions 11,553 - - 11,553

Disposals - - - -

Depreciation Expense (34,707) (16,575) (5,699) (56,981)

Carrying amount at the end of the year 51,318 24,556 0 75,874

2011 Furniture Equipment

$

Leasehold Improvements

$

Intangibles $

Total $

Balance at the Beginning of the year 64,272 57,706 39,833 161,811 Additions 44,512 - - 44,512

Disposals - - - -

Depreciation Expense (34,312) (16,575) (34,134) (85,021)

Carrying amount at the end of the year 74,472 41,131 5,699 121,302

2012 $

2011 $

7. OTHER EXPENSES

Included in other expenses are:

Depreciation and amortisation 56,981 85,021

Employee benefits 2,288,914 2,120,415

Operating lease payments 374,189 347,990

8a PAYABLES

Creditors 950,718 688,425

Deferred other income 37,135 38,928

987,853 727,353

8b UNEARNED PREMIUM LIABILITY

Unearned premium liability 1 July 35,377,000 35,617,000

Earning of premiums written in previous periods (26,114,144) (24,364,102)

Deferral of premium contracts written in period 26,896,266 26,114,144

Unexpired risk liability recognised for year ending 30 June (note 27 (a)) 1,927,878 (1,990,042)

Unearned premium liability 30 June 38,087,000 35,377,000



2012$

2011 $

9. PROVISIONS

CURRENT

Employee Benefits 367,673 322,780

NON-CURRENT

Employee Benefits 1,883 11,732

Aggregate Employee Benefit Liability 369,556 334,512

Number of employees at year end 15 14

10. ACCUMULATED FUNDS

Accumulated Funds at the beginning of the year 76,886,289 64,977,189

OperatingProfit/(loss)fortheyear 6,889,279 11,909,100

Accumulated Funds at the end of the year 83,775,568 76,886,289

11. AUDITORS' REMUNERATION

Remuneration of the auditor for:

- auditing or reviewing the financial report 42,300 39,200

- other services - -

42,300 39,200

Audit fees paid or payable to the Victorian Auditor-General's

Office for audit of the Fund's financial report:

Paid as at 30 June - -

Payable as at 30 June 42,300 39,200

42,300 39,200




2012 $

2011 $

12(a). RESPONSIBLE PERSONS

In accordance with the Ministerial Directions issued by the Minister for Finance under the Financial Management Act 1994, the following disclosures are made regarding responsible persons for the reporting period.

Names

The persons who held the positions of Ministers and Accountable officers in the Fund are as follows:

Attorney General The hon. Robert Clark MLA 1 July 2011 to 30 June 2012

Remuneration

Amounts relating to Ministers are reported in the financial statements of the Department of Premier and Cabinet.

12(b). COMMITTEE AND EXECUTIVE DISCLOSURE

COMMITTEE

Income paid or payable to all Committee Members and any related parties 518,961 488,633

Number of Committee Member's whose income from the Fund was within the following bands$ No. No.

10-20,000 - -

20-30,000 5 5

40-50,000 1 1

320-330,000 - 1

350-360000 1 -

The names of Committee Members who held office during the year were:

Peter Daly Mary Radisich

Peter Fox Geoffrey Rees

Patricia Kelly Matthew Walsh

Miranda Milne

The remuneration of the Chief Executive Officer is also included in the executive remuneration disclosure



12 (b) COMMITTEE AND EXECUTIVE DISCLOSURE CONTINUED

Total Remuneration Base Remuneration2012

No.2011

No.2012

No.2011

No.EXECUTIVE

Income Band

$

120-130,000 - - 1 1

130-140,000 1 2 - 1

140-150,000 - 3 - 3

150-160,000 2 - 2 -

160-170000 1 - 1 -

180-190,000 - 2 - 2

190-200000 2 - 2 -

210-220,000 1 - 1 -

270-280,000 - - - 1

290-300,000 - 1 1 -

310-320000 1 - 1 1

320-330,000 - 1 - -

350-360000 1 - - -

Total Numbers 9 9 9 9

Total annualised employee equivalents (AAE)* 8.3 8.5 8.3 8.5

Total Amount $1,877,747 $1,673,004 $1,814,922 $1,634,204

* Annual employee equivalent is based on working 35 ordinary hours per week over the reporting period.

2012 2011

13. COMMITMENTS AND CONTINGENCIES $ $

Operating Lease Commitments:

Non-cancellable operating leases contracted for but not capitalised in the financial statements

Payable:

- not later than 1 year 386,645 369,308

- later than 1 year but not later than 5 years 180,064 562,966

- later than 5 years - -

566,709 932,274

The property lease is a non-cancellable lease. The lease is for a 5 year term. There are no options. Rental increases are fixed annually on the anniversary of the commencement date. The lease contains a" make good" clause effective at the end of the term of the lease.

Other Commitments:

The Fund has entered into an agreement with Jana Investment Advisers Pty Ltd. for the provision of investment advice. This agreement is for a 12 month period. The agreement expires on the 31st December 2012.

Payable:

- not later than 1 year 60,000 60,000


14. CONTINGENT ASSETS

Currently the Fund has an interest in Real Estate as a result of the provision of funds relating to the settlement of a claim.

The Fund is entitled to a proportion of the net proceeds less certain expenses after the death of the proprietor. As the realisable value of the property cannot be known at this point in time the future economic benefit cannot be quantified.

This entitlement is secured by a mortgage over the property.

15. INDEMNIFYING OFFICERS AND AUDITOR

During or since the end of the financial year the Legal Practitioner’s Liability Fund has given an indemnity or entered into an agreement to indemnify , or paid or agreed to pay insurance premiums as follows:

The fund has paid premiums to insure the Committee Members against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Committee Member of the Fund, other than conduct involving a wilful breach of duty in relation to the Fund. The total amount of the premium was $22,200

Individual Committee members have entered into Deeds of Indemnity with all other members to indemnify them to the extent permitted by law against certain liabilities and legal costs incurred by them as members of the Committee.

16. SEGMENT REPORTING

The Fund operates in a single industry and geographical segment, being a professional indemnity insurer to legal practitioners in Australia.

17. FINANCIAL INSTRUMENTS

(a) Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement, and the basis on which income and expenses are recognised, with respect to each class of financial asset, and equity instrument are disclosed in Note 1(k) to the financial statements.

(b) Fair Values

The financial instruments recognised at fair value in the Balance Sheet have been analysed and classified using a fair value hierarchy reflecting the significance of inputs used in making the measurements. The fair value hierarchy consists of the following level:

- quoted prices in active markets for identical assets or liabilities (Level 1)

- inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) ( Level 2); and

- inputs for the asset or liability that are not based on observable market data (unobservable inputs) ( Level 3).

30-Jun-12 Level 1 Level 2 Level 3 Total

Financial Assets

- Unit in managed funds 69,941,888 35,840,411 - 105,782,299

30-Jun-11

Financial Assets

- Unit in managed funds 74,352,710 32,731,698 - 107,084,408

Included in Level 1 are the managed equity funds and in Level 2 is the managed property fund. Their market value has been determined as per note 1(k).



17. FINANCIAL INSTRUMENTS CONTINUED

c) Interest Rate Risk

The fund’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rates on classes of financial assets and financial liabilities, is as follows:

30 June 2012 Fixed Interest maturing in: Weighted

Average Interest Rate

Floating Interest

Rate

Within Year

1 to 5 Years

Over 5 Years

Non Interest Bearing

Total

Financial Assets:

Cash 3.46% 23,450,315 - - - - 23,450,315

Receivables n/a - - - 2,326,033 2,326,033

Investments n/a - - - - 105,782,299 105,782,299

Bank Bills n/a - - - - - -

Term Deposits 5.5% 71,266,666 - - - - 71,266,666

Total Financial Assets 94,716,981 - - - 108,108,332 202,825,313

Financial Liabilities:

Creditors n/a - - - - 987,853 987,853

Outstanding claims n/a 79,838,000 79,838,000

Total Financial Liabilities - - - - 80,825,853 80,825,853

30 June 2011 Fixed Interest maturing in: Weighted

Average Interest Rate

Floating Interest

Rate

Within Year

1 to 5 Years

Over 5 Years

Non Interest Bearing

Total

Financial Assets: Cash 3.75% 24,500,343 - - - - 24,500,343

Receivables n/a - - - 1,812,558 1,812,558

Investments n/a - - - - 107,084,408 107,084,408

Bank Bills n/a - - - - - -

Term Deposits 6.1% 64,600,933 - - - - 64,600,933

Total Financial Assets 89,101,276 - - - 108,896,966 197,998,242

Financial Liabilities:

Creditors n/a - - - - 727,353 727,353

Outstanding claims n/a 84,899,000 84,899,000

Total Financial Liabilities - - - - 85,626,353 85,626,353

The fund’s exposure to the risk of change in market interest rates relate primarily to the fund’s investments in cash and cash equivalents. The fund’s policy is to invest cash and cash equivalents with a recognised bank. Banks are selected on recommendation of our external advisors and their performance is monitored.



17. FINANCIAL INSTRUMENTS CONTINUED

(d) Credit Risk

The maximum exposure to credit risk at Balance Date to recognised financial assets is the carrying amount of those assets as disclosed in the Balance Sheet and notes to the financial statements. It is the fund’s policy to only deal with entities with high credit ratings. In addition the fund does not engage in high risk hedging for its financial assets.

(e) Liquidity Risk

To ensure adequate liquidity to meet cash outflows the fund maintains the necessary funds in cash and short term bank bills or term deposits. While the receipt of the annual premium provides sufficient cash to meet most if not all of the fund’s requirements during the year, additional cash is held in reserve.

(f) Market Risk

The fund is exposed to the risk of market movements in the local and overseas equity markets through its investment in unquoted unit trusts in these asset classes.

Equity Market Risk

The fund’s exposure to the risk of change in equity markets relate primarily to the fund’s investments in local and overseas equities.

The fund’s policy is to use independent investment managers to manage our exposure to local and overseas equities. Managers are selected on recommendation of our external advisors and their performance is monitored.

Foreign Currency Risk

The fund’s exposure to the risk of change in exchange rates relate primarily to the fund’s investments in overseas equities. A combination of partially and fully hedged funds are used. Managers are selected on recommendation of our external advisors and their performance is monitored.

Sensitivity Disclosure Analysis

Taking into account past performance, future expectations and management’s knowledge and experience of the financial markets, the fund believes the following movements are ‘reasonably possible’ over the next 12 months

- A shift of +.5% or -.25% in market interest rates from year end rates of 3.50%

- A shift of + 10% or - 10% in the average weighted market value of local equities, overseas equities and local property unquoted unit trusts.

Market Risk Exposure

Interest Rate Risk Other Price Risk

2012Financial Assets

CarryingAmount

-0.25% +.5% -10% +10%

Profit Equity Profit Equity Profit Equity Profit Equity

Cash and cash equivalents 94,716,981 (236,792) (236,792) 473,585 473,585

Unquoted unit trusts 105,782,299 (10,578,230) (10,578,230) 10,578,230 10,578,230

2011Financial Assets

CarryingAmount

-1.0% +1% -20% +15%

Profit Equity Profit Equity Profit Equity Profit Equity

Cash and cash equivalents 89,101,276 (891,013) (891,013) 891,013 891,013

Unquoted unit trusts 107,084,408 (21,416,882) (21,416,882) 16,062,661 16,062,661

18. DESIGNATION OF FINANCIAL ASSETS

The financial assets are measured at fair value through the profit and loss.



19. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The fund’s principal financial instruments comprise of unquoted unit trusts and cash and cash equivalents.

The main purpose of these financial instruments it to ensure that there is sufficient ability to meet the obligations under the policies of insurance that have been issued.

These instruments are managed by the Investment Committee who utilize the services of our external advisor - Jana Investments Pty Ltd.

The main risk arising from the fund’s financial instruments are interest rate risk, equity market risk, foreign currency risk and credit risk which are discussed in note 17 above.

There are no significant concentrations of credit risk within the fund.

20. RELATED PARTY TRANSACTIONS

The fund had no related party transactions other than those referred to in Note 12 - Committee and Executive Disclosure.

21. EVENTS AFTER THE BALANCE SHEET DATE

There were no material events after balance sheet date that require disclosure.

22. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES

The fund makes estimates and assumptions in respect of certain key assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas in which critical estimates are applied are described below.

It has been determined that no critical accounting judgements have been made in the year.

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 balance date. The estimated cost of claims include direct expenses to be incurred in settling claims. The fund takes all reasonable steps to ensure that it has appropriate information regarding its claims exposure. However, given the uncertainty in establishing claims provisions it is likely that the final outcome will prove to be different from the original liability established. For assumptions and methods used refer Note 23.

23. ACTUARIAL ASSUMPTIONS AND METHODS

Under 17.6.1c of AASB 1023, the following describes the method and main assumptions that have the greatest effect on the calculated insurance liabilities provisions.

The Legal Practitioners’ Liability Fund has provided professional indemnity insurance to solicitors since 1/1/86, and to barristers since 30/06/05. Incurred development and payment patterns derived from the average experience for solicitors over the last 5 complete policy years were assumed to apply to solicitor and barrister claims outstanding at 30/6/12

Development Year Ultimate claims incurred as % of current estimate

Payments to end of year, as % of ultimate

0 85.4%* 8.7%

1 87.2%* 39.8%

2 90.8% 60.7%

3 94.6% 72.1%

4 97.5% 80.3%

5 99.5% 88.2%

6 100.0% 93.3%

7 100.0% 96.0%

8 100.0% 97.6%

9 100.0% 98.6%* An actual ratio of 100% (ie. No development) was applied for year 0 and 1 as a precautionary measure until reserves begin to show signs of reduction

Other main assumptions used in calculating insurance provisions and their sources are: - A discount rate of 2.50% based on medium term Commonwealth bond yields - Claims administration expense of 7.1% of net claim payments based on actual expenses of LPLC - Wage inflation of 3.30% pa based on state government forecasts



23. ACTUARIAL ASSUMPTIONS AND METHODS CONTINUED

Claims incurred estimates were made by applying the above claims incurred development ratios to current claim incurred data and applying wage inflation and payment patterns. Outstanding claims at 30 June 2012 were estimated by deducting payments to date.

Gross payments in 2012-2013 for solicitors are estimated by determining an average, inflation adjusted claim incurred estimate per principal equivalent from the last 5 complete policy years and applying to expected incurred principals in 2012-2013.

Gross payments in 2012-2013 for barristers are estimated as a ratio of solicitor incurreds

Premium liabilities are then determined by applying wage inflation and payment patterns and allowing for reinsurance and overhead claim administration expense

The calculations used to estimate outstanding claim and unexpired premium liabilities were repeated as at each prior balance date back to 31/12/87, and compared with the actual outcomes estimated at 30/6/12. Log normal distributions were fitted to the resulting percentages, and used to estimate the risk margins needed to provide varying probabilities of adequacy.

The outstanding claims were assumed to have a standard deviation of 13% and the premium liabilities a standard deviation of 34%.

Sensitivityanalysisasat30/6/11

Risk Variable Assumed Increased Profit

Change $MDiscount Rate (%pa) 2.50% 3.50% 2.811

Claims administration expense as a % of payments 7.10% 8.10% (0.776)

Wage inflation % pa 3.30% 4.30% (0.732)

Claim Development* Negative Nil (5.862)

12-13 claim per prinicipal equivalent - solicitors 4,862 5,348 (6.316)

12-13 claims per principal equivalent - barristers 680 748 (0.366) * Nil claim development scenario was applied only to central estimate. Risk margins are not reduced.

Under AASB 1023 17.7.1(b)(i), the insurer has to disclose sensitivity to insurance risk. The above table gives the changes in total provisions (outstanding claims plus premium liabilities, including risk margins) from changes in the relevant risk variable.

24. INSURANCE CONTRACTS - RISK MANAGEMENT AND PROCEDURES

The financial condition and operation of the fund are affected by a number of key risks including insurance risk, interest rate risk and credit risk.

Notes on the fund’s policies and procedures in respect of managing these risks are set out in this note.

(a) Objectives in managing risks arising from insurance contracts and policies for mitigating those risks

The fund has an objective to control insurance risk thus reducing the volatility of operating profit. In addition to the inherent uncertainty of insurance risk, which can lead to significant variability in the loss experience, profit from insurance business is affected by market factors, particularly the movement in asset values.

The Committee and senior management of the Fund have developed, implemented and maintain a sound and prudent Risk Management Strategy (RMS)

Key aspects of the processes established in the RMS to mitigate risk include:

- The maintenance and use of sophisticated management information systems, which provide up to date, reliable data on the risks to which the business is exposed at any point in time

- Actuarial models, using information from the management information systems, are used to calculate premiums and monitor claim patterns.

Past experience and statistical methods are used as part of the process.

- Reinsurance is used to limit the fund’s exposure to catastrophes

- The mix of assets in which the fund invests is driven by the nature and term of its insurance liabilities

(b) Terms and conditions of insurance

- The terms and conditions attached to insurance contracts affect the level of insurance risk accepted by the fund. The majority of direct insurance contracts are entered into on a standard form basis.



24. INSURANCE CONTRACTS - RISK MANAGEMENT AND PROCEDURES CONTINUED

(c) Concentration of risk insurance

- In the event of a catastrophe, the Legal Practitioners Liability Fund carries a stop loss insurance policy to cover the payment of total claims made during the year ended 30 June 2012 in excess of $42.5m

(d) Development of claims

- There is a possibility that changes may occur in the estimate of our obligations at the end of a contract period. The table in note 28 shows the estimate of total claims outstanding for each underwriting year at successive year ends with the current year being an estimate provided by our external actuarial consultant.

(e) Interest rate risk

- None of the financial assets or liabilities arising from insurance or reinsurance contracts entered into by the fund are directly exposed to interest rate risk.

- Insurance and reinsurance contracts are entered into annually. At the time of entering into the contract all terms and conditions are negotiable or, in the case of renewals, renegotiable.

(f) Credit risk

- Financial assets and liabilities arising from insurance and reinsurance contracts are stated in the balance sheet at the amount that best represents the maximum credit risk exposure at balance date.

There are no significant concentrations of credit risk.

25. NET PREMIUM REVENUE

2012 $

2011 $

Gross Written Premiums 27,286,224 26,884,034

Movement in Unearned Premium (782,121) (1,750,042)

Net Premium Revenue 26,504,103 25,133,992

26. NET CLAIMS INCURRED

2012 2011

Current Year

$

Prior Years

$

Total

$

Current Year

$

Prior Years

$

Total

$Gross claims expense 30,513,000 (19,228,317) 11,284,683 37,330,000 (9,050,718) 28,279,282

Discount movement (1,464,000) 5,482,000 4,018,000 (3,214,000) 2,368,000 (846,000)

29,049,000 (13,746,317) 15,302,683 34,116,000 (6,682,718) 27,433,282

Reinsurance and other recoveries revenue

Reinsurance and other - - - - - -recoveries revenue - - - - - - -

undiscounted

Discount movement - - - - - -

- - - - - -

Net claims incurred 29,049,000 (13,746,317) 15,302,683 34,116,000 (6,682,718) 27,433,282

Current year amounts relate to risks borne in the current financial year. Prior periods amount relate to a reassessment of the risks borne in all previous financial years.




27. UNEXPIRED RISK LIABILITY

When the amount of the premium pool to be collected for the next insurance year is set, it is ‘subsidised’ on the basis that a proportion of the accumulated funds are offset against the premium pool which would otherwise have been collected. As a result the unearned premium liability is deficient as at 30 June 2012.

(a) Unexpired risk liability

2012 $

2011 $

Unexpired risk liability as at 1 July 9,262,856 11,252,898

Recognition of additional unexpired risk liability in the period 1,927,878 (1,990,042)

Unexpired risk liability as at 30 June 11,190,734 9,262,856

(b) Calculation of deficiency

Unearned premium liability relating to insurance contracts 26,896,266 26,114,144

Central estimate of present value of expected future cashflows arising from future claims 32,277,000 29,533,000

Risk Margin of 19.8% 5,810,000 5,844,000

38,087,000 35,377,000

Net deficiency 11,190,734 9,262,856

The process of determining the overall risk margin is discussed in Note 23. As with outstanding claims the overall risk margin is intended to achieve a 75% probability of adequacy.

28. OUTSTANDING CLAIMS LIABILITY

(a) Outstanding Claims Liability

Central estimate of claims still to be paid 74,411,000 82,950,000

Discount to present value (4,085,000) (8,103,000)

70,326,000 74,847,000

Present value of claims handling costs 4,993,000 4,116,000

Risk Margin 4,519,000 5,936,000

Gross Outstanding claims liability 79,838,000 84,899,000

Gross Outstanding claims incurred - undiscounted 83,923,000 93,002,000

Current 28,704,000 30,516,000

Non-current 51,134,000 54,383,000

Total 79,838,000 84,899,000

(b) Risk margin applied 6.000% 7.517%


2012 $

2011 $

(c) Reconciliation of movement in discounted outstanding claims liability

Brought forward 84,899,000 80,946,000

Increaseinclaimsincurred/recoveriesanticipatedovertheyear (19,228,317) (9,050,718)

Incurred claims recognised in the Statement of Comprehensive Income 30,513,000 37,330,000

Claimspayments/recoveriesduringtheyear (20,363,683) (23,480,282)

Movement in net present value adjustment 4,018,000 (846,000)

Carried forward 79,838,000 84,899,000

(d) Claims Development table ($m)

Policy Year 2008 2009 2010 2011 2012 Total

Estimate of ultimate claim cost at end of policy year 33.457 29.393 29.122 33.627 27.216

one year later 27.221 28.684 27.956 32.928

two years later 25.575 28.064 22.405

three years later 24.803 21.691

four years later 21.946

current estimate 21.946 21.691 22.405 32.928 27.216 126.186

cumulative payments (16.973) (17.544) (12.853) (9.341) (1.374) (58.085)

undiscounted central estimate 4.973 4.147 9.552 23.587 25.842 68.101

discount (4.085)

present value of claims handling expenses 4.993

undiscounted central estimate prior years 6.310

risk margin 4.519

Total Outstanding Claims 79.838

29 NET PRESENT VALUE ADJUSTMENT TO OUTSTANDING CLAIMS

2012 $

2011 $

Opening Balance 8,103,000 7,257,000

Prior Year (5,482,000) (2,368,000)

Current Year 1,464,000 3,214,000

Closing Balance 4,085,000 8,103,000



Declaration by members of the Committee


Auditor General’s Report


Auditor General’s Report continued

To be supplied


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Level 31, 570 Bourke Street Melbourne VIC 3000 Telephone 9672 3800Fax 9670 5538www.lplc.com.au

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