MDDUS Annual Report and Accounts 2012

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The Medical and Dental Defence Union of Scotland Protecting you since 1902

annual report & accounts 2012

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ContentsFrom the Chairman 04

From the CEO 04

Review of MDDUS activities 05

Finance director’s report 12

Directors’ report 14

Audit Committee report 17

Independent auditors’ report 18

Financial statements for 2012 19

MDDUS Board and honorary fellows 33

Management and professional staff 34

External professional advisers 35

4 MDDUS Annual Report and Accounts 2012

Dr Brendan SweeneyChairman

16 August 2013

Professor Gordon C A DicksonChief Executive Officer

and Secretary

16 August 2013

From the ChairmanFollowing the AGM in 2012, the Board elected me as chairman, and it gives me great pleasure to present my first annual report. I am only too conscious of the difficult task of following Alistair Beattie, who served an unprecedented 31 years on the Board of MDDUS, 17 of these as treasurer and 10 as chairman. Under Alistair’s stewardship, the Union has expanded both in terms of membership and financial security and MDDUS is now a significant presence in the UK medical and dental defence marketplace. I was delighted to present Alistair with an honorary fellowship of the Union at the June Board meeting.

During the past year David Wray retired from the Board and this year both George Bennet and Eric Battison will retire. I thank them for many years of valued contribution to Board discussions. We co-opted Dame Elish Angiolini to the Board as our third lay non-executive director. Dame Elish is a former Lord Advocate and Solicitor General of Scotland, and is currently principal of St Hugh’s College, University of Oxford.

During 2012 we continued to strengthen our financial position and it is evident from the annual accounts and the report of the finance director that our reserves are comfortably adequate to meet known and anticipated liabilities. The sole raison d’être of the Union is to provide as efficient a service as possible to our members, and to this end we have continued the upgrading of our IT system and have introduced a speedier system of access to advice for members with a significant reduction in call-backs.

The growth of our membership in England continues, and we await with interest the independence white paper in November in order to begin to assess the impact of possible Scottish independence following the referendum in 2014. Over half our active membership now work outside Scotland.

My responsibilities as chairman are greatly eased by excellent working relationships with the chief executive and finance director, and I am happy to acknowledge my indebtedness to them and indeed to the entire staff of the Union who ensure the smooth running of the organisation and the maintenance of an excellent standard of service to members.

From the CEOI attended a talk some time ago by the founder of a well-known UK car exhaust firm. He was speaking about the challenges of managing a business with branches in every major town in the country but it was one of his opening comments that resonated most with me. He started by saying that no one wakes up in the morning and decides they will change their car exhaust. It seems such an obvious observation to make. Something has happened that caused the customer to call one of his branches and so they must be able to respond immediately and positively to that need. I feel it is almost exactly the same for us at MDDUS. I expect very few members think about MDDUS too much on a day-to-day basis and none decide to phone just for a chat! Something has happened that has caused them to be in touch and what they need is access to someone who will be able to help them there and then.

That is our role at MDDUS and as you will see from the pages of this report we respond to an ever-growing number of calls from members every day of the year. No matter what has prompted the call to us, we aim to offer a professional and empathetic ear. Where necessary we of course do much more by way of providing assistance and in many cases indemnity.

We were delighted last year when we received the results from an anonymous poll conducted on our behalf by one of the UK’s largest polling organisations, in which our members had ranked the service they receive from us higher than the score given by members of other defence bodies. Nothing is more important to us than being there to assist when the need arises.

You will see some indication of our activity over the year in the pages of this report and meet some of the staff who provide that service to members. I pay tribute once again to them. Our members are well served by a loyal and dedicated group of staff who bring great skill to the task of assisting our members in so many ways.

Finally, this is your Union and so I thank you for your continuing membership and look forward to continuing to provide the service you expect and deserve.

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Review of MDDUS activities

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Review of MDDUS activities 5

Our total membership in the year 2012 grew 8 per cent and as of 1 July 2013 stood at 35,182

The year 2012 saw another milestone for MDDUS with membership experiencing the highest yearly rate of growth in a decade. Our total membership grew 8 per cent in 2012 and as of 1 July 2013 stood at 35,182. Growth in total active membership was even more impressive at 8.8 per cent, compared with 5.8 per cent growth in 2011.

MDDUS maintains its preeminent market share among Scottish doctors and dentists. Growth has come mainly outside of Scotland and most particularly among GPs in England. Last year, 2,206 English GPs joined the Union. In 2006 around 9 per cent of English GPs belonged to MDDUS and today that fi gure is over 17 per cent.

Looking to continued growth among GPs, MDDUS was recently pleased to win a contract for the provision of indemnity to GP specialist trainees (GPSTs) at Health Education East of England. MDDUS also provides medical indemnity to GPSTs at NHS North Lancashire and at the St Helens & Knowsley Teaching Hospitals NHS Trust.

MDDUS also saw improved growth in 2012 among general dental practitioners (GDPs) with a 3.3 per cent rise in membership. Growth among private physicians and hospital doctors was an impressive 6.8 per cent.

There are a number of reasons why our membership keeps growing. A recently commissioned national market research survey identifi ed two key factors infl uencing doctors or dentists in their choice of defence body – price and immediate access to professional advice. MDDUS has focused on getting both of these right, maintaining a competitive pricing structure and providing members with a personalised service when they need to contact us.

MDDUS Annual Report and Accounts 2012

Membership sees continued growth


MDDUS has over the last few years seen evidence of a growing compensation culture in the UK, which is also in line with reports from other defence bodies and NHS litigation authorities. This may be related to the harsh economic climate of recent years but is being manifested in increasing claim rates and consequent legal costs.

In 2012 MDDUS saw a 35 per cent rise in claims intimated over the year compared to 2011. This included a 42 per cent rise in GP claims. Claims intimated against GDPs have increased by 53 per cent while claims against hospital doctors fell slightly. Some of this overall increase can be attributed to our growing membership but the trend in increased litigation was also reflected in a small rise in the frequency of claims.

The trend also shows a regional dimension. Last year we reported on a so-called “Scottish effect” in litigation with rates much lower north of the border. This is borne out again in 2012 with the rate of claims significantly lower among Scottish members.

MDDUS is not alone in our experience of rising claims. The cost of medical negligence payments by the NHS in Wales has almost doubled over the past three years and the NHS Litigation Authority in England has claimed that costs increased 45.9 per cent in the year 2011-12.

Rates for “non-claims” cases involving referral to the GMC or GDC have also increased. In 2012 MDDUS saw a 41 per cent increase in the number of GMC cases handled on behalf of members and the number of GDC cases increased by 67 per cent. This rise in regulatory cases is consistent with figures reported by both the GMC and GDC and reflects a number of factors including a greater proportion of registrants now being reported to regulators by employers or colleagues. The total external legal costs for future non-claims (including GMC/GDC, fatal accident inquires, coroner’s inquests and disciplinary cases) after actuarial adjustment almost doubled in the year 2012.

MDDUS is proud of its success rate in defending members. Over 75 per cent of medical claims and 70 per cent of dental claims intimated to our members close with no payment being made. Among “non-claims” cases, 96.5 per cent of GMC cases and 86.8 per cent of GDC cases in the year 2011 concluded with no sanctions imposed against MDDUS members.

Increased litigation and “non-claim” cases

meet…

Dr Susan Gibson-Smith,medical adviser

Susan worked as a GP for 13 years before joining MDDUS in 2009. She qualifi ed from Glasgow University in 1992 and returned there to complete a postgraduate MPhil in Law and Ethics in Medicine in 2004. She has experience in GP training, undergraduate and postgraduate medical teaching as well as working as a GP appraiser from 2004 to 2011. Her role at MDDUS is busy and varied, providing members with advice and support with medico-legal matters, negligence claims, complaints and GMC referrals.

“I really enjoy the great variety within the job. You can be on the phones giving advice to members, writing articles for MDDUS publications or meeting with doctors to assist with a coroner’s inquest or fatal accident inquiry.”

Wendy Tennyson,Secretary to the head of dental division

The dental division has changed considerably since Wendy joined MDDUS in 1997.

Gone are the paper fi les and dictation cassettes she once used, as advances in technology mean all information is now stored and managed electronically. The number of advisers and their caseloads has also grown as membership has increased over the years. As secretary to the head of dental division, this means Wendy’s role is a busy one. She responds to calls and written correspondence from members, assists with the allocation of new cases, and scans and uploads case fi les to the MDDUS system.

“It’s a very busy job and can get quite hectic at times. But we all work as part of a team and it’s nice to help members and provide a good service.”

7Review of MDDUS activitiesMDDUS Annual Report and Accounts 2012

Advisory and legal servicesLast year the MDDUS medical advisory team handled a record 13,664 member contacts (telephone, email, letters) – a 5.2 per cent increase on 2011 and the continuation of a seven-year rise. Dental advisory contacts also increased in 2012.

Various explanations can be advanced for the increase in calls, including the steady growth in membership throughout the UK and an increasing number of patient complaints. There is also now a greater awareness among members that it is best to seek advice early rather than risk problems later escalating into formal complaints or legal claims.

For medical cases, the most frequent type of advice related to patient complaints (21 per cent of calls), confi dentiality, claims, diffi cult patients and records. For dental cases, it was advice concerning diffi cult patients, complaints, dental records, problems with colleagues and treatment planning.

Our employment law team saw an 8.5 per cent increase in advice requests in 2012, 20 per cent of these dental and 80 per cent medical. The three most popular topics of advice were contractual issues, absence and disciplinary matters.

In 2012 MDDUS recruited fi ve new medical advisers as part of a programme to expand and streamline our medical advisory division. The Union has also expanded our in-house legal teams both in London and Glasgow to meet the rising civil and regulatory caseload.

8

MDDUS has continued to make its voice heard on behalf of members in a wide range of forums and across a large number of consultations during the last year. This is consistent with our strategy of ensuring that our presence and infl uence is maintained in all relevant areas of healthcare. Notable amongst these has been:

• Major submissions on the reforms of the civil justice system inEngland and the “Jackson Reforms” on controlling legal costs.

• Ensuring the acceptance of discretionarymedical indemnity asan appropriate form of cover to ensure patients harmed due to clinical negligence can seek redress through compensation.

• Submissionsonthefutureofthecosmeticsurgeryindustry.

• Major reforms to the GDC fitness to practise procedures andCPD requirements.

• Submissionsondirectaccesstodentalhealthcareprofessionals.

• Continuedreformof theGMC’sproceduresandthedevelopingrole of the Medical Practitioners Tribunal Service (MPTS).

• Engagement with the Department of Health on the scope ofNHS indemnity and the implementation of adequate indemnity arrangements.

• Majorconsultationonno-faultcompensationinScotland.

• Majorconsultationonreformofthedamagesdiscountrateandthe use of periodical payments in England and Wales.

The Union is consistently making its views known on a range of other matters in order to ensure that members’ interests are properly safeguarded.


Infl uence in legal and regulatory matters

Promotion and recruitmentThe marketing department at MDDUS encompasses a wide range of activities including new member recruitment, promotional activities, publications and press relations. These are all key to the Union’s aspiration to become an equal national player in the medical and dental defence market in terms of infl uence, presence and size. In addition to regular visits to hospitals and medical and dental practices, marketing staff attend numerous conferences and exhibitions across the UK.

In October of 2012 MDDUS was the principal sponsor of the RCGP annual national conference in Glasgow. We also sponsored the 2012 UK Conference of Postgraduate Educational Advisers in General Practice in Newcastle. More recently in June of 2013 MDDUS sponsored an RCGP Scotland ethical conference on compassion in primary healthcare in Edinburgh. Other medical conferences and exhibitions attended include the 2012 NAPC Commissioning Conference in London and the 2012 Management in Practice Event held in Manchester.

meet…

Rukmanie Athwal,case assistant

The MDDUS legal team in London has grown considerably in the past year with Rukmanie, one of our newest recruits, joining in November 2012. After completing a law degree at the University of Nottingham in 2009, she worked as a claims handler for an insurance fi rm, dealing with public liability and employer’s liability claims. Her next role was as a paralegal for a fi rm specialising in claimant clinical negligence law. Now, Rukmanie helps the MDDUS legal team manage case work – reading reports, drafting documents such as letters of response or instructions to experts, as well as other important day-to-day case management.

“It can be daunting for members to receive a letter of claim, so being able to explain to them what the legal jargon means and support them at a trying time in their lives is very rewarding.”

Richard Hendry,press relations offi cer

Raising the profi le of MDDUS in the media is the main aim of our press relations offi cer.

Richard has worked in the newspaper industry as a reporter and sub-editor for more than 10 years and brought the benefi t of his experience to the Union in 2011. His role involves working closely with our advisory teams to produce press releases and articles on a wide range of topics. He must also be ready to respond to inquiries from the medical and dental press as well as from the national media. He established an MDDUS presence on social media sites Facebook and Twitter, providing regular news and events updates.

“It’s important that MDDUS has a strong presence in the media and I enjoy working with our advisors and UK journalists to achieve that. Securing good media coverage is a challenge but the successes are very rewarding.”

ALSO INSIDEAN MDDUS

PUBLICATION

ISSUE 06

05 MRCGP EXAMTACKLING WPBA 08 EMERGENCY CARE

A SPECIAL INTEREST CAREER

ON CALL

SKI PATROL GP MIKE LANGRAN

ON SUB-ZERO CARE AND

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AN MDDUS PUBLICATION

PracticeManagerISSUE 8

Dragon at The gATe

HanDle wITh CAre

a viSit froM The CqC

Can the myth of the “surly” and unhelpful receptionist finally be slayed?

What to expect when you’re inspected by the Care Quality Commission

Is your results handling system fail-safe or a disaster waiting to happen?

PATIENT

POWER!PATIENT

POWER!PATIENT PATIENT PATIENT

POWER!PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT PATIENT

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POWER!POWER!POWER!POWER!POWER!

patient participation groUpS

not jUSt anotHer tick-box exerciSe

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brancH gp SUrgery at Heaton park SainSbUry’S

ALSO INSIDEAN MDDUS

PUBLICATION06 VOLUNTEERING ADVENTURE IN KENYA 10 CLINICAL RISK

PERIODONTICS

HAVE YOU LET SLOPPY HABITS CREEP INTO THE WAY YOU PRACTISE?

ISSUE 06

ALSO INSIDEAN MDDUS

PUBLICATION

FYiISSUE 10

08 A CAREER INOCCUPATIONAL MEDICINE 10 REVALIDATION

HOW IT ALL BEGAN

A TRAINEE’S WORK IN AN AFRICAN PRISON

FINDING

PURPOSE

Review of MDDUS activities 9MDDUS Annual Report and Accounts 2012

MDDUS also exhibited at the 2012 British Dental Trade Association Showcase in London and the 2013 Dentistry Show in Birmingham, as well as FGDP study days throughout the UK in 2013.

One key event in the marketing calendar in May of 2013 was the BMJ Awards in London at which MDDUS was pleased once again to act as principal sponsor. The Union’s chief executive Professor Gordon Dickson welcomed 644 guests, 63 shortlisted teams and 15 winning teams from all over the UK. Among the attendees were some of the most infl uential fi gures in UK healthcare.

Thanks to the eff orts of our press offi cer in 2012, MDDUS featured regularly in medical and dental publications both online and in print, including Pulse, GP, the BMJ, Dentistry and Practice Management, as well as in national newspapers including the Telegraph, Daily Mail, Herald Scotland and The Guardian. MDDUS is active on Twitter and Facebook with links to our articles and press releases, and MDDUS resources are also frequently encountered in Google and other online search engines.

MDDUS publications staff continue to produce a range of quality magazines aimed at various membership segments, along with two monthly e-newsletters with a growing readership as evidenced by “click rates”. This year we revamped the Resource Library page on mddus.com to allow easier browsing of past articles and other resources – this is in addition to our Publications page from which all our printed material is available to read online.


Membership servicesIn 2012 Membership Services dealt with over 27,940 telephone enquiries from existing and prospective members, and in the first quarter of 2013 alone we handled 6,652 calls. In 2012 we received over 5,000 email enquiries (1,335 in first quarter of 2013) of which just under 90 per cent were responded to within two working days.

Membership Services continues to offer members advice on their correct level of cover, in line with their changing circumstances, drawing on our combined experience of over 100 years of service among department staff. We make every effort to ensure that emails and letters are replied to within two working days of receipt and telephone enquiries are answered promptly, ensuring our members continue to receive excellent service levels, as we aspire to offer a service that is second to none.

In February 2013 we launched an updated and more user-friendly version of our online application form and in the first five months of use over 1,250 forms were processed.

Training and consultancyOver the last year, MDDUS Training and Consultancy has continued to develop and deliver a variety of risk management topics across the UK to conferences and groups of doctors, dentists and practice managers. Two online risk modules are now available on our website. ‘Leading through uncertainty’, our five-day leadership and risk programme (accredited by the Royal College of Physicians), has been more popular than ever. It has received overwhelmingly positive feedback from participants and continues to attract senior GPs and hospital doctors from across the UK.

meet…

Leslie Hamilton,membership services assistant

With an impressive 33 years’ service under her belt, Leslie is MDDUS’ longest serving employee. She started as a teenager in 1980, processing membership applications and renewals and handling telephone enquiries. Members’ subscription details were handwritten or typed into large ledgers while Leslie took calls on one of only two available telephone lines. She had only intended to remain in her post for a few months but enjoyed the role so much she accepted an off er to stay. Now, Leslie continues to process applications, renewals and member correspondence but the way she works has completely changed. Membership has massively increased and nearly all of Leslie’s work is handled electronically.

“Things have changed a lot since I started but it’s still a varied job with no two calls the same. It’s constantly busy and there’s always a real buzz about the department.”

Peter Johnson,risk manager

Protecting and enhancing MDDUS’ reputation is central to Peter’s role. He joined the Union in 2009, having graduated from the

University of Edinburgh in 1988 with a science degree before moving into more business-focused roles. He developed an interest in quality management and is now a fellow of the Chartered Quality Institute and a specialist of the Institute of Risk Management. Peter chairs the MDDUS underwriting group, which considers membership applications, and works to maintain and continually improve the systematic approach to the analysis of risk within MDDUS. He also regularly reports to the Board on key trends in risk data, and compiles the strategic risk register.

“This is a fascinating and important area of risk to work in, especially during a period of an increasing claims culture within the UK. It feels like quite a unique role, to have the chance to work closely with doctors, dentists and lawyers in managing risk on a daily basis.”

11Review of MDDUS activitiesMDDUS Annual Report and Accounts 2012

Other developments This year the Board of MDDUS was pleased to announce the appointment of Dame Elish Angiolini QC as a non-executive director. The former Lord Advocate and Solicitor General of Scotland brings considerable knowledge and experience to MDDUS and will play an important role in strategic development in the organisation.

Following the 2012 purchase of the building housing our London offi ces at 1 Pemberton Row, the Union has been developing plans to expand the space there by adding two additional fl oors. This will accommodate our growing London staff and provide additional room for expansion. Meanwhile at the MDDUS Glasgow headquarters, staff have settled into the extra space provided by our expansion into 167 Bath Street. The B-listed Georgian townhouse has provided much needed additional meeting space and offi ces for our Glasgow legal team and other support staff .

The financial uncertainties of the economic environment continue and although there may be some early indications of a greater degree of stability returning, for the foreseeable future MDDUS will continue to be faced with the challenge of how best to manage the capital value and returns from its investments in order to meet future liabilities as they fall due and at the same time ensure the Union’s ability to meet the needs of its members. Closer to home,

we also see further evidence emerging in the market of an increase in the frequency and value of medical and dental claims, and the Union’s own experience is no different. This increased cost has, of course, the potential to impact adversely on reserves.

Financial overviewHowever, despite these challenges I am pleased to report that building on the strong performance in 2011, the financial results for 2012 show further consolidation of the Union’s financial position. The income and expenditure account shows a surplus for the year on ordinary activities after taxation of £35.963m (2011: £25.892m). It is encouraging to note that although subscription income continues to increase, this was not solely as a reflection of the need to increase rates in certain areas of membership but is more a reflection of the increase in membership numbers. MDDUS in 2012 continued to attract significant numbers of UK general medical practitioner members. As will be seen later, this growth has brought with it growth in our asset value.

The balance sheet indicates that the total net assets of the Union have increased by 27.3 per cent in the year to £249.6m (2011: £196m). Total assets before the provision for liabilities have grown by 13.7 per cent. Members will be aware that in addition to the claims and non-claims matters that have been reported to the Union at 31 December 2012 and incorporated in the financial statements, there will be claims and non-claims reported at a later date for incidents arising from periods of membership ending before 31 December 2012 – the so-called incurred but not reported (IBNR) liabilities. It is the aim of MDDUS to maintain a surplus in excess of the actuarial valuations of both reported and IBNR claims and non-claims. This surplus acts as a cushion against possible future adverse claims experience or investment performance. It is reassuring to note that in the past year it has been possible to maintain this financial assurance. I can advise that the latest actuarial report confirms that the Union has sufficient funds to meet the IBNR liabilities in respect of which the Union may exercise its discretion in the future.

Financial performanceMembers’ subscription and other income rose from £53.6m to £57.9m in the year – an increase of 8 per cent. This increase is as a result of a new stream of rental income from our property in London, an increase in subscription rates but most significantly as a result of the increase in membership numbers as has been detailed earlier in the report. In 2012 active membership rose by 8.8 per cent. It is important to stress that membership rates are set in line with actuarial advice and the target is to collect sufficient funds to cover all payments that may become due in respect of claims and non-claims matters, as well as general administration costs. Such claims and non-claims may of course take many years to be reported and to develop into matters necessary for MDDUS to deal with. It is not unknown for a claim to be notified 20 years after the incident, especially in relation to high-value brain-damaged baby cases.

MDDUS reviews subscription rates for general medical and dental practitioners and for consultants in private practice on an annual basis. As detailed elsewhere in this report MDDUS has recognised that in recent years the frequency of medical and dental general practitioner claims reported in Scotland has been lower than elsewhere. Differential subscriptions are charged to private consultants in relation both to the risk which the specialty poses to the mutual pool and to the level of income. The majority of MDDUS members in 2012 either saw a freeze in their subscription or a below inflation increase. Those members in high-risk/high-earnings categories saw an increase in their rate commensurate to the risk that they pose to the mutual fund.

Finance director’s report


Figure 1 Comparison of the provision for liabilities to the underlying asset allocation

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132012 financial reviewMDDUS Annual Report and Accounts 2012

Claims costs and associated legal costsClaims costs and associated legal costs are the aggregation of all the costs associated with claims paid in the year together with the charge that takes account of the movement in the value of all claims reported to the Union at 31 December 2012. These costs include payments to lawyers, counsel, experts and the in-house legal and advisory teams, as well as compensation payments and adverse legal costs. The Union has also incorporated within the actuarial provision an amount for exceptional claims. I am pleased to report that in the year these costs decreased by 27 per cent to £15.560m (2012: £21.402m). Although as we look forward we see claims costs and the frequency of claims increasing, as a result of the skilled management of existing cases by our legal and advisory teams we have seen many current cases either being successfully defended or else settled for less than anticipated.

Advisory and non-claims legal costsAdvisory and non-claims legal costs apply to those matters with which members seek assistance that are not claims. This would include regulatory matters such as those involving the GMC or GDC, as well as other general matters relating to a member’s professional clinical practice. These costs have increased in the year by 96 per cent to £9.4m (2011: £4.8m). This figure represents not just payments made in the year but the adjustment needed to increase the provision in the balance sheet for events that have been reported to MDDUS at 31 December 2012 but will be paid at some time in the future.

Administration costsAdministration costs are those overhead costs that are incurred in running the Union that are not claims or non-claims related. Administration costs increased by 12.2 per cent to £7.46m in the year (2011: £6.65m). Underlying costs on the previous year remained relatively constant but the increase came about as a result of essentially two factors: following a revaluation of our extended and refurbished premises in Glasgow an amount was written off the value of the property and secondly, although we have a new stream of rental income from our new building in London, there are the additional property related costs.

InvestmentsMDDUS keeps its investment strategy under constant review. Our current investment strategy is to select a cautious investment portfolio with a spread of asset classes in the expectation that over the long term (which is our timescale of investment) the portfolio will ride out the vagaries of the market. In essence this means that at 31 December 2012 MDDUS had more than half of its investments held in cash, gilts and bonds to match the reported claims and non-claims liabilities in the balance sheet.

The balance of the portfolio restricts losses in times of adverse trading but still allows the opportunity to take advantage of equity recoveries. This diversification is also maintained by the appointment of four managers to manage the funds, as well as having advisers who independently evaluate both the fund and managers’ performance. In 2012 MDDUS had a return on its investments net of management fees of 7 per cent. Some years ago MDDUS decided to concentrate on the provision of indemnity and advisory services to UK-based practitioners only and this has allowed it to focus on supporting these

members without running the added risk associated with overseas trading. The market value of group investments was £399m against a cost of £366m at the year end. During the year the Union’s revaluation reserve rose by 79.7 per cent to £33m. Figure 1 details the relationship in recent years between the main asset categories and liabilities.

Provision for liabilities and chargesMDDUS is convinced that discretionary occurrence-based protection remains the most effective and reliable basis of protection for the medical and dental professions. This means that the MDDUS balance sheet has to have sufficient assets to pay compensation for claims and non-claims matters (such as GMC/GDC referrals) reported at 31 December 2012 but for which payments will not be payable until many years in the future. In addition, we must also account for the potential cost implications of those incidents that will already have occurred prior to 31 December 2012 but not yet reported – the IBNR claims and non-claims. The MDDUS Board is confident that MDDUS has sufficient assets to meet these payments when they fall due; in other words that capital levels are adequate.

The provision for liabilities and charges relating to all claims and non-claims matters notified to the Union at 31 December 2012 decreased this year by just under 1.8 per cent to £168.0m (2011: £171.0m). Figure 2 details the reported provision for claims and non-claims in recent years which has remained relatively steady (albeit with a fall in 2012) and the steady increase in total assets less current liabilities (a rise of 13.7 per cent in 2012). This increase is a good indication of the ability of MDDUS to provide financial security to its members.

Summary There will be challenging times ahead but the financial results of 2012 demonstrate the continuing consolidation of the sound financial position achieved by MDDUS in recent years and this provides a solid financial foundation for the future.

Figure 2 Relationship between total assets less current liabilities and the provision for liabilities

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Principal activityMDDUS, a private company limited by guarantee, is a mutual membership organisation founded in 1902 to offer assistance, advice and, where necessary, indemnity to doctors and dentists. All the benefits of membership are discretionary as set out in the Memorandum and Articles of Association. MDDUS, a company incorporated in Scotland, is the holding company of the group.

In addition, the group has three wholly owned subsidiaries: MDDUS Insurance Limited, an insurance company incorporated and registered in Guernsey, MDDUS Education Limited, a risk and training company incorporated in Scotland, and MDDUS Property Limited, which has been incorporated in Scotland to manage the Union’s property in London.

Business reviewA review of the financial performance of the business during the year is included in the 2012 financial review on pages 12 and 13.

The BoardThe Board currently consists of 19 directors, comprising 17 non-executive directors and two executive directors: the chief executive and finance director. There are three lay non-executives: one who is an experienced risk management professional, one who has actuarial and business development experience with large financial services companies and one from a legal background. Any member can stand for election to the Board. With effect from the AGM in 2005, non-executive directors normally serve no more than three, four-year terms of office, subject to ensuring appropriate succession for key office bearers. All non-executive directors who are members of the Union pay the appropriate membership subscription to the Union. Some also receive payments for expert witness services at the standard rate, the total amount paid in 2012 being £450 (2011: £300).

The Board appoints directors to the positions of chairman and vice chairman. In 2012, the Board agreed that the Finance Committee should be reconstituted as the Investment Committee. The roles of chairman and chief executive are separate and their profiles clearly distinguish between the running of the Board and executive responsibility for the running of the business.

The Board met seven times in 2012 with an attendance rate of 89 per cent. The individual attendances of Board members are detailed in the table (right). A scheme of delegation is in place under which specific matters are reserved for the Board alone. These include such issues as the approval of the strategic plan, approval of the annual report and accounts, alterations to the Memorandum and Articles of Association of the Union and changes to the provision of services to members.

Corporate governanceUK companies listed on the main market of the London Stock Exchange are required to describe in the annual report and accounts their adherence to the main principles outlined in the UK Corporate Governance Code (the Code).

The Union is not a listed company but in seeking the highest standards of corporate governance has modelled its own governance arrangements on the guidance provided by the Code. It has therefore considered it appropriate to include in this annual report and accounts a statement, where applicable, in accordance with the Code.

Directors who served in 2012

DirectorNumber of Board

Meetings attended*

Anderson, I W R 7 (7)

Battison, E W 5 (7)

Beattie, A D 4 (4)

Bennet, G C 6 (7)

Berry, J P 7 (7)

Black, J 6 (7)

Chambers, W A 5(7)

Chapman, J M 7 (7)

Critchley, H O D 5 (7)

Dickson, G C A 7 (7)

Donald, R 7 (7)

Fleming, A 7 (7)

Garner, J A M 6 (7)

McDonald, P 5 (7)

Needham, G 6 (7)

Pearson, D W M 6 (7)

Semple, L 7 (7)

Slevin, C J 7 (7)

Sweeney, B 7 (7)

Wray, D 2 (4)

* In brackets is the number of meetings the director was eligible to attend during the year. See page 33 for a list of current Board members.


Directors’ report

15Directors’ reportMDDUS Annual Report and Accounts 2012

Board committeesThere are four Board committees: Nominations, Remuneration, Investment and Audit. All non-executive directors serve on at least one committee and no members of the Investment Committee also serve on the Audit Committee. These four committees are chaired by the chairman (Nominations), vice chairman (Remuneration and Investment) and a senior non-executive (Audit). Each committee has a clearly defined remit and, in addition, the Investment and Audit committees also have a set of “reserved powers” covering issues that cannot be delegated to any other body. The work of the Audit Committee is described later in the report.

The Nominations Committee is charged with identifying and nominating candidates to fill Board vacancies. There is a role profile for a non-executive director and an induction handbook for new directors. In suggesting suitable candidates the committee takes into account the structure, size and composition of the Board. The committee is also responsible for the processes by which evaluation of the Board and the evaluation of the performance of individual directors are undertaken. The committee meets as and when required, and during 2012 it met twice. The attendance rate was 100 per cent.

The Remuneration Committee sets the policy for the terms, conditions and remuneration of the executive directors and certain senior staff. The committee also recommends the level of non-executive remuneration to the full Board. The committee met once in 2012 with an attendance rate of 100 per cent.

As mentioned earlier, in 2012 the Board agreed to reconstitute the Finance Committee as the Investment Committee. In 2012, the Finance Committee met four times and had an attendance rate of 91 per cent.

The Investment Committee now deals with all the Company’s investment matters, e.g. determining investment policy, overseeing the performance of the investment managers, while all other financial activities previously dealt with at the Finance Committee, such as monitoring income and expenditure, settling subscription pricing levels and agreeing budgets, have now come under the remit of the Board. The newly constituted Investment Committee met once in 2012 and had an attendance rate of 100 per cent.

Risk and controlsThe Board is responsible for the effectiveness of the processes and systems employed in the management of risk and the exercising of internal controls. Management is responsible for the identification, assessment, management and monitoring of risk and for developing, operating and monitoring the system of internal control.

The main risks facing MDDUS are:

• Market risk. This is the risk of loss or of adverse change in the financial situation resulting, directly or indirectly, from fluctuations in the level and in the volatility of market prices of assets, liabilities and financial instruments. To mitigate this risk MDDUS investment policy takes into account our business, solvency position, long-term risk versus performance and underlying exposure. MDDUS has clear investment guidelines in place and the Investment Committee receives regular updates from investment managers.

• Underwriting risk. This is the risk of loss due to inadequate pricing or reserving assumptions. MDDUS mitigates this risk by having suitable underwriting and reserving processes and procedures to ensure that statistical and accounting data are accurate and reliable. MDDUS obtains detailed actuarial advice with all costs identified and incorporated into our pricing model. MDDUS treats all members and prospective members consistently and equitably, balancing the interests of individual members with the interests of the membership as a whole and ensuring best value for MDDUS funds.

• Operational risk. This is the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events. To mitigate this risk MDDUS has implemented an effective process to identify, document and monitor exposure to operational risk and track relevant operational risk data.

A risk register is maintained that includes a description of key strategic risks together with an assessment of their frequency and impact on the Union. The register also includes the management actions taken and an indication of their efficacy. This is reviewed annually or more frequently if necessary, with the Audit Committee recommending any changes to the full Board.

The Audit Committee is also charged with reviewing the internal financial controls of the Union and reporting to the Board. The system of control stems from the clear definition of reserved powers in place for the Board, Investment Committee, Audit Committee and the Senior Management Committee. There is regular reporting of financial information at all levels within the organisational structure. This includes the production of actual departmental monthly spend against budgeted spend, monthly management accounts and listings of all payments made including settlements and legal expenses. The Board also receives reports on all core claims and non-claims activity.

The group’s investment managers operate on a discretionary basis, acting in accordance with clear investment guidelines. Compliance with these guidelines is monitored regularly by a firm of external investment risk consultants. This work allows the Investment Committee to assess the risks involved in the separate classes of investment.

To support financial accountability, a fully integrated system of departmental budgeting is in place. This is aimed at ensuring compliance with agreed budgets and with strategic and departmental plans.

Going concernThe financial statements are prepared on the going concern basis. In adopting the going concern basis the directors consider that the group has sufficient assets to continue in operation for the foreseeable future.

Statement of directors’ responsibilitiesThe directors are responsible for preparing the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The financial statements are required by law to give a true and fair view of the state of affairs of the group and company and of the surplus or deficit of the group for that period. In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply themconsistently

• makejudgementsandestimatesthatarereasonableandprudent

• state whether applicable accounting standards have beenfollowed, subject to any material departures disclosed and explained in the financial statements

• prepare the financial statements on the going concern basisunless it is inappropriate to presume that the group will continue in business.

The directors are responsible for keeping proper accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the group and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the preparation of the other information contained in the annual report including the Review of MDDUS activities, the 2012 financial review and the Directors’ report. Financial statements are published on the company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the company’s website is the responsibility of the directors. The directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.

Statement as to disclosure of information to auditors

So far as the directors are aware, there is no relevant audit information of which the company’s auditors are unaware, and each director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company’s auditors are aware of that information.

Auditors

The retiring auditors, BDO LLP, offer themselves for re-appointment at the forthcoming Annual General Meeting.

On behalf of the BoardProfessor Gordon C A DicksonChief Executive and Secretary16 August 2013


17Audit Committee reportMDDUS Annual Report and Accounts 2012

MDDUS is committed to best standards of business practice, modelling its corporate governance arrangements on the UK Corporate Governance Code (UKCGC). Members of the Board have individual and collective responsibility for good governance, and the Audit Committee effectively acts as their watchdog in this respect. In the 2012 edition of the UKCGC there is a recommendation that a separate section of the annual report should describe the work of the Audit Committee.

The committee’s major responsibilities during the year were:

• review of final financial statements and recommending theirapproval to the Board

• recommending the re-appointment of our external auditors,agreeing the scope of their work and their remuneration

• reviewing the effectiveness and independence of our externalauditors

• considerationbeforeapprovalofanynon-auditworkgiventotheauditors to undertake

• considerationandapprovaloftheriskregister

• reviewandagreementoftheinternalauditprogramme,reviewingthe results of the work carried out by our internal auditors, and deciding on any actions that need to be taken

• reviewingtheeffectivenessofourinternalauditors.

The committee also has responsibility for other matters, such as whistle-blowing and oversight of the directors’ register of interests.

External auditThe committee met with the external auditors, BDO LLP, formally on three occasions during the year to discuss the nature and scope of the audit, to review (in some detail) the audit plan and lastly to review the outcome of the audit and to discuss issues arising and their resolution.

At our first meeting with the auditors in the year we reviewed the group’s accounting policies to ensure that they remained appropriate and discussed in broad terms the major risks that the auditors were likely to consider in progressing their work. The committee agreed the audit plan with the auditors, having paid particular regard to issues of scope and materiality and agreed their remuneration.

Any non-audit services carried out by BDO LLP are strictly limited and have to be agreed in advance by this committee or by me on its behalf. This year these have been limited to tax compliance, iXBRL tagging of financial statements and VAT advisory work surrounding the acquisition of our office building in London.

The effectiveness of our external auditors is assessed annually. We remain satisfied that they are delivering for our members in terms of the necessary scepticism and challenge in their work and also in terms of supporting the annual report process effectively.

Internal auditWhilst the Board as a whole is responsible for risk, we have an internal risk management department. The manager of this department is responsible for running the risk register process each year and brings the proposed risk register to the committee for consideration and recommendation to the Board.

We have outsourced our internal audit function to Deloitte, who run a programme of internal audit activity prioritised around our perceived risks. We reviewed the internal audit plan at the outset of the year.

Over the course of our three meetings we reviewed the internal audit projects and discussed potential actions required with executive directors as necessary. We also receive feedback on the implementation of recommended actions when requested.

We review the effectiveness of our internal auditors formally on an annual basis, using structured objective feedback from audit committee members, the managers of departments involved in the projects and our senior executives. We remain satisfied that they are delivering an appropriate service.

The committee met three times in 2012 with an attendance rate of 73 per cent.

Dr Judith M ChapmanAudit Committee Chairman 16 August 2013

Audit Committee report

Independent auditor’s report to the members of the Medical and Dental Defence Union of ScotlandWe have audited the financial statements of The Medical and Dental Defence Union of Scotland for the year ended 31 December 2012 which comprise the consolidated income and expenditure account, the consolidated and company balance sheets, the consolidated cash flow statement, the consolidated statement of total recognised gains and losses, the consolidated note of historical cost income and expenditure and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at

www.frc.org.uk/auditscopeukprivate

Opinion on financial statements

In our opinion the financial statements: • give a true and fair view of the state of the group’s and the parent

company’s affairs as at 31 December 2012 and of the group’s surplus for the year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matters prescribed by the Companies Act 2006

In our opinion the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:• adequate accounting records have not been kept by the parent

company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Andrew McNamara (senior statutory auditor)For and on behalf of BDO LLP, statutory auditor4 Atlantic Quay70 York StreetGlasgowG2 8JX

16 August 2013

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127)

Independent auditor’s report


1919 Financial statements for 2012MDDUS Annual Report and Accounts 2012

Financial statements for 2012

Consolidated income and expenditure account For the year ended 31 December 2012

Notes 2012 2011

£’000 £’000

IncomeMembers’ subscriptions and other income

1[c]

57,880

53,591

Expenditure Claims costs and associated legal costsAdvisory and non claims legal costs Administration costs

15,560

9,4487,464

21,402

4,809 6,646

32,472 32,857

Surplus of income over expenditure Reinsurance recoveries

2 25,4082,451

20,734 192

27,859 20,926

Realised gains/(losses) on disposal of fixed assets Investment income

1[g]&5

6208,170

(2,179) 7,807

Surplus on ordinary activities before taxation 36,649 26,554

Taxation 1[i]&6 686 662

Net income available for transfer to reserves 35,963 25,892

All amounts relate to continuing operations

The notes on pages 23 to 32 form part of these financial statements.

MDDUS Annual Report and Accounts 20122020 MDDUS Annual Report and Accounts 2012

Consolidated statement of total recognised gains and losses For the year ended 31 December 2012

Consolidated note of historical cost income and expenditure For the year ended 31 December 2012

2012 2011

£’000 £’000

Surplus on ordinary activities after taxation Unrealised surplus/(deficit) on revaluation of investments

35,963 17,587

25,892 (9,211)

Total net surplus since last annual report 53,550 16,681

2012 2011

£’000 £’000

Reported surplus before taxation

Difference between the historic cost gain on investments sold in the year from that on a revalued basis

36,649

2,917

26,554

5,592

Historical cost net surplus before taxation 39,566 32,146

Historical cost net surplus after taxation 38,880 31,484


MDDUS Annual Report and Accounts 2012 21Financial statements for 2012MDDUS Annual Report and Accounts 2012

Consolidated and company balance sheets As at 31 December 2012 Company Number SC005093

NotesGroup

2012Group

2011Company

2012Company

2011

£’000 £’000 £’000 £’000

Fixed assets

Tangible assets

Investments

7

8

17,179

398,691

3,361

364,161

3,842

395,010

3,360

344,498

415,870 367,522 398,852 347,858

Current assets

Debtors and payments in advance

Cash at bank, in hand and on deposit

9

23,879

7,911

21,931

5,479

20,232

7,384

18,914

5,327

31,790 27,410 27,616 24,241

Creditors: amounts falling due within one year

Sundry creditors and accrued charges

Corporation tax provision

10

30,045

301

27,614

177

29,630

243

27,713

177

30,346 27,791 29,873 27,890

Net current assets 1,444 (381) (2,257) (3,649)

Total assets less current liabilities 417,314 367,141 396,595 344,209

Provision for liabilities and charges 11 167,712 171,089 167,712 171,089

Total net assets 249,602 196,052 228,883 173,120

Reserves

Accumulated fund

Revaluation reserve

12(a)

12(b)

216,531

33,071

177,651

18,401

195,877

33,006

154,787

18,333

249,602 196,052 228,883 173,120

These financial statements were approved by the members of the Board on 17 May 2013.

Brendan Sweeney Chairman


John Garner Vice Chairman


Consolidated cash flow statement For the year ended 31 December 2012

Notes 2012 2011

£’000 £’000

Cash flow from operating activities 14 25,670 28,141

Returns on investments

Interest received

Dividends received

2,024

6,146

2,062

5,745

8,170 7,807

Tax paid (562) (231)

Capital expenditure and financial investment

Purchase of tangible assets

Sale of tangible assets

Purchase of investments

Sale of investments

(14,473)

76

(88,077)

71,628

(278)

-

(108,076)

60,244

(30,846) (48,110)

Increase/(decrease) in cash in the year 2,432 (12,393)

Analysis of changes in net funds At 01/01/12 Cash flow At 31/12/12

£’000 £’000 £’000

Cash at bank, in hand and on deposit 5,479 2,432 7,911

Net funds 5,479 2,432 7,911

Reconciliation of net cash flow to movement in net liquid funds

£’000

Increase in cash 2,432

Net fund at 1 January 2012 5,479

Net fund at 31 December 2012 7,911



MDDUS Annual Report and Accounts 2012 23Financial statements for 2012

Notes to the accounts For the year ended 31 December 2012

1. Accounting policies

a) Accounting convention The accounts are prepared under the historical cost convention as modified by the revaluation of certain assets and investments and in accordance with applicable accounting standards.

b) Basis of consolidation The consolidated income and expenditure account and balance sheet include the financial statements of the company and its subsidiary undertakings made up to 31 December 2012. No income and expenditure account is presented for the Medical and Dental Defence Union of Scotland as permitted by section 408 of the Companies Act 2006. The group surplus for the year included a surplus after tax of £38.172m (2011 £32.896m) which is dealt with in the financial statements of the parent company. In the company financial statements investments in subsidiary undertakings are carried at the lower of cost or net asset value.

c) Subscriptions Subscription income comprises amounts receivable during the year, apportioned to accounting periods on a time basis. All subscription income is generated within the UK.

d) Fixed assets The fixed assets are stated at cost or revalued amount. Depreciation is provided on bases which will write off the assets to an estimate of their residual value over their expected lives.

Depreciation on fixed assets has been provided as follows: i) Computer equipment has been depreciated on the straight line basis at the rate of 25% per annum ii) Furniture, fittings, office equipment and motor vehicles

have been depreciated on the reducing balance basis at the rate of 25% per annum.

iii) Freehold property has been depreciated on the straight line basis over a period of 50 years.

In accordance with SSAP 19 ‘Accounting for investment properties’, investment properties are revalued annually to open market value and no depreciation is provided. The directors consider that this accounting policy results in the financial statements giving a true and fair view. The effect of this departure from the Companies Act 2006 has not been quantified because it is impracticable and, in the opinion of the directors, would be misleading. The aggregate surplus or deficit arising on revaluation is transferred to the revaluation reserve except where a deficit is deemed to represent a permanent diminution in value, in which case it is charged to the income and expenditure account.

e) Operating leases Rentals in respect of leasing agreements are charged to the income and expenditure account as incurred.

f) Provision for liabilities and charges Full provision has been made in the financial statements at

discounted future settlement values in respect of estimated settlement and associated legal costs and salary costs of handling claims. This provision is based on actuarial advice and relates to all claims notified as at 31 December 2012.

Full provision has been made in the financial statements at discounted future settlement values in respect of legal costs and salary costs of handling non claims. This provision is based on actuarial advice and relates to all incidents notified as at 31 December 2012.

g) Dividends and interest Dividends, interest on investments and short term deposits

have been shown gross. Accrued interest on short term deposits and unfranked investment income dividends have been provided in the year. In addition, only franked investment income dividends received in the year to 31 December 2012 have been included.

h) Investments Listed investments held at 31 December 2012 are stated at

the mid-market valuation on that date. Unlisted investments have been valued at the lower of cost or net asset value. Movements on revaluation are accounted for through the investment revaluation reserve or for permanent diminution through the income and expenditure account.

i) Taxation Corporation tax has been provided on all investment income

and capital gains and adjusted for tax deducted at source from unfranked investment income using the rate of 24% (2011: 26%). No provision has been made for potential tax liabilities on unrealised gains arising from the revaluation of investments. Tax credits on dividend income have not been included in the tax charge.

j) Pension costs Defined contribution pension arrangements are made for

certain employees to which contributions are made by the company. Amounts due to insurance companies in respect of these arrangements are charged to the income and expenditure account in the year to which they relate. In addition, subject to certain conditions, a number of employees have had the return on the pension contributions guaranteed. The liability accruing under this arrangement is calculated annually and any shortfall or surplus arising (over and above the level of actual contributions made) is recognised as a charge or credit in the income and expenditure account. The assets of pension schemes are held separately from those of the company in independently administered funds.



Notes to the accountsFor the year ended 31 December 2012 (continued)

2. Surplus of income over expenditure

2012 2011

This is stated after charging:£’000 £’000

Emoluments of directors (excluding benefits in kind)Auditors’ remunerationPension costsDepreciation on owned assetsLeasing of property

768 52

955 301

70

701 38

1,202 310 172

Auditors’ remuneration consists of: Group auditors - auditGroup auditors - taxation compliance & VAT adviceOther auditors - audit

37 15

-

29

2 7

52 38

Company only auditors’ remuneration 30 29

3. Emoluments of directors

2012 2011

£’000 £’000

The detail of directors’ emoluments (including executive directors) was as follows: Emoluments (including benefits in kind)Pension costs

779 107

713

99

886 812

The detail of the highest paid director’s emoluments was as follows: Emoluments (including benefits in kind)Pension costs

332

65

310 61

397 371

Number Number

Number of directors to whom retirement benefits are accruing under money purchase pension schemes

2

2


25MDDUS Annual Report and Accounts 2012 Financial statements for 2012 25


4. Employees’ remuneration

2012 2011

£’000 £’000

Salaries (including executive directors)Social security costsPension costs

5,180 621 955

4,827 572

1,202

6,756 6,601

Average number of employees in the year

AdministrativeManual

Number

94 -

Number

90 4

94 94

5. Investment income

2012 2011

£’000 £’000

Dividends

FrankedUnfranked

5,0011,145

4,7151,030

Bank interest 2,024 2,062

8,170 7,807




6. Taxation

2012 2011

£’000 £’000

Current tax on income for the year through the income and expenditure account 686 662

Factors affecting the tax charge

The tax assessed for the year is lower than the standard rate of corporation tax in the UK. The difference is explained below.

2012 2011

£’000 £’000

Surplus on ordinary activities before tax 36,649 26,554

Surplus on ordinary activities before tax multiplied by the

standard rate of corporation tax in the UK of 26% (2011:28%):

standard rate of corporation tax in the UK of 24% (2011:26%):

2,350

6,627

1,833

5,202

Effects of :

Surplus of income over expenditure not taxed

Non taxable franked investment income of group

Unfranked & interest income of Guernsey subsidiary not taxed

(Gain)/loss on disposal of investments & assets

(6,824)

(1,209)

(171)

(152)

(5,544)

(1,237)

(171)

577

Other 65 2

Current tax charge through income and expenditure account 686 662

Provision has not been made in the accounts for tax of approximately £7.9m (2011:£4.8m) which would arise should the invest-ments be sold at market value, included in the balance sheet. This is on the basis that there are no immediate plans to realise the assets. Capital losses brought forward of approximately £5m are available to reduce this liability.




7. Tangible fixed assets

Group

Freehold property

Investment property

Furniture fittings &

office equipment

Motor vehicles Total

Cost/Valuation £’000 £’000 £’000 £’000 £’000

At 1 January 2012

Additions

Disposals

Revaluation

2,999

796

-

(645)

-

13,336

-

-

778

95

-

(472)

448

246

(180)

-

4,225

14,473

(180)

(1,117)

At 31 December 2012 3,150 13,336 401 514 17,401

Depreciation

At 1 January 2012

Provided during year

On disposals

Revaluation

165

76

-

(241)

-

-

-

-

463

127

-

(590)

236

98

(112)

-

864

301

(112)

(831)

At 31 December 2012 - - - 222 222

Net book value

At 31 December 2012 3,150 13,336 401 292 17,179

At 31 December 2011 2,834 - 315 212 3,361



7. Tangible fixed assets (continued)

Company

Freehold property

Investment property

Furniture fittings & office

equipmentMotor

vehicles Total

Cost/Valuation £’000 £’000 £’000 £’000 £’000

At 1 January 2012AdditionsDisposalsRevaluation

2,999796

- (645)

- - - -

77795

- (472)

448246

(180)-

4,2241,137(180)

(1,117)

At 31 December 2012 3,150 - 400 514 4,064

Depreciation

At 1 January 2012Provided during yearOn disposalsRevaluation

165 76

- (241)

- - - -

463 127

- (590)

23698

(112)-

864301

(112)(831)

At 31 December 2012 - - - 222 222

Net book value

At 31 December 2012 3,150 - 400 292 3,842

At 31 December 2011 2,834 - 314 212 3,360

Group and Company

Freehold property

Investment property

Furniture fittings & office

equipmentMotor

vehicles Total

Group £’000 £’000 £’000 £’000 £’000

Carrying value based on historical cost 4,637 13,336 267 292 18,532

Company

Carrying value based on historical cost 4,637 - 266 292 5,195 As reported in the 2011 Annual Report the Union acquired the property at 167 Bath Street the building adjacent to Mackintosh House. This property was refurbished during 2012 and the two buildings linked. This “new building” was valued by David Tuckett BSc MRICS of Rushtons International, an external firm of asset valuers, on an Existing Use Value basis at 31 December 2012 at a value of £3.150m.

In addition MDDUS Property Limited, a wholly owned subsidiary of the Union, in August 2012 acquired 1 Pemberton Row, London at a cost of £13.336m. The Union already occupied the fourth floor as its London office. All other floors are leased to tenants on an open market basis. No formal valuation of this building has been carried out as the directors are of the opinion that the cost price fairly reflects its valuation at 31 December 2012.

The furniture, fittings and office equipment were revalued by Matthew Radmilo of Rushton International, an external firm of asset valuers, on a Value to the Business basis at 31 December 2012 at a value of £400k.

Capital CommitmentsCapital expenditure approved and contracted for amounted to £nil (2011:£789k)





8. Investments

Group2012

Group2011

Company2012

Company2011

Valuation £’000 £’000 £’000 £’000

Market value at 1 January 2012AdditionsDisposalsSurplus/(deficit) on revaluation

364,16188,077

(71,017)17,470

327,719108,076(62,423)

(9,211)

344,498101,576(68,538)

17,474

300,738108,276(55,355)

(9,161)

Market value at 31 December 2012 398,691 364,161 395,010 344,498

Listed investmentsUnlisted investments

398,691-

364,161-

346,80748,203

314,28630,212

398,691 364,161 395,010 344,498

Historical cost 365,755 345,777 362,139 326,183

During the year the company acquired 18,000,000 ordinary shares of £1 in MDDUS Property Limited. Unlisted Investments at 31 December 2012 relate to the Company’s holding of the entire issued share capital of 1,700,000 ordinary £1 shares of MDDUS Education Limited, a risk assessment and training company, incorporated in Scotland, the entire issued share capital of 30,000,000 ordinary £1 shares of MDDUS Insurance Limited, an insurance company incorporated and registered in Guernsey and the entire issued share capital of 18,000,000 ordinary £1 shares of MDDUS Property Limited, a property company incorporated in Scotland.

9. Debtors and payments in advance

Group2012

Group2011

Company2012

Company2011

£’000 £’000 £’000 £’000

Trade debtorsOther debtorsPayments in advanceAmounts owed by subsidiary undertakings

23,094631154

-

21,208583140

-

19,724328154

26

18,435339140

-

23,879 21,931 20,232 18,914

All amounts shown under debtors fall due for payment within one year.




10. Sundry creditors and accrued charges

Group2012

Group2011

Company2012

Company2011

£’000 £’000 £’000 £’000

Deferred incomeOther taxes and social security costsSundry creditors and accrualsSubsidiary undertakings

28,093270

1,682-

26,099191

1,324-

28,093209

1,28840

26,099183

1,252179

30,045 27,614 29,630 27,713

11. Provision for liabilities and charges

ClaimsNon

Claims Total

Group and company £’000 £’000 £’000

At 1 January 2012Charged to income and expenditure account in yearPaid in year

158,214 15,560

(22,251)

12,875 9,448

(6,134)

171,089 25,008

(28,385)

At 31 December 2012 151,523 16,189 167,712

The provision represents the discounted value of expected settlement and associated legal costs and salary costs of handling claims and non claims activity of all notified incidents at 31 December 2012.


31MDDUS Annual Report and Accounts 2012 31Financial statements for 2012


12. Reserves

Group2012

Group2011

Company2012

Company2011

£’000 £’000 £’000 £’000

a) Accumulated fund

At 1 January 2012Transfer from revaluation reserveTransferred from income and expenditure account

177,6512,917

35,963

146,1675,592

25,892

154,7872,918

38,172

116,4975,394

32,896

At 31 December 2012 216,531 177,651 195,877 154,787

b) Revaluation reserve

At 1 January 2012Increase/(decrease) in valuation of investments & fixed assetsTransfer of realised gain

18,40117,587(2,917)

33,204(9,211)(5,592)

18,33317,591(2,918)

32,888(9,161)(5,394)

At 31 December 2012 33,071 18,401 33,006 18,333

The transfer from revaluation reserve represents the unrealised gain in prior years on those investments sold in the current year and therefore now realised.

13. Reconciliation of movement in funds

2012 2011

£’000 £’000

Net surplus for the financial yearOther recognised gains/(losses) relating to the year

35,96317,587

25,892(9,211)

Total recognised gains Opening funds available to meet future liabilities as previously stated

53,550

196,052

16,681

179,371

Closing funds available to meet future liabilities 249,602 196,052



14. Reconciliation of operating surplus to net cash flow from operating activities

2012 2011

£’000 £’000

Operating surplusDepreciation chargesDiminuation in value of assetsLoss on disposal of assetsIncrease in debtorsIncrease in creditors(Decrease)/increase in provisions

27,859301404

- (1,948)

2,431(3,377)

20,926310

- 9

(1,754)2,3976,253

Net cash inflow from operating activities 25,670 28,141

15. Other financial commitments

Group and Company

The following payments under non-cancellable operating leases are committed to be paid within one year in respect of land and buildings:

2012 2011

£’000 £’000

Operating leases which expire: Over five years

142

165

142 165

16. Member’s guarantee

The Medical and Dental Defence Union of Scotland is a company limited by guarantee of up to £1 per member.

17. Related party disclosures

The company has taken advantage of the exemption conferred by Financial Reporting Standard 8 “Related party disclosures” not to disclose transactions with its wholly owned subsidiaries. The directors do not consider there to be any one single controlling party of the company.



33MDDUS Annual Report and Accounts 2012 33The MDDUS Board and honorary fellows

The MDDUS Board and honorary fellows

Chairman Brendan Sweeney2,3,4 MBE MA MBChB DRCOG FRCGP

Chairman Alistair D Beattie (retired 21 September 2012) MD FRCP (Glasg, Lond & Edin) FFPM

Vice chairmanJohn Garner2,3,4 MBChB FRCGP DCH DRCOG

Chief executive officer and secretary*Gordon C A Dickson2 MLitt PhD FCII FIRM

Other members of the BoardIan W R Anderson1 CBE FRCS (Glasg, Ed, Eng) FRCP (Glasg, Ed, Lond) FCEM FIFEM Hon FACP DSc

The Right Honourable Dame Elish Angiolini DBE QC

Eric W Battison2 BDS FDSRCS (Edin) MGDSRCS (Edin) MGDSRCPS (Glasg)

George C Bennet4

BSc MBChB FRCS

Jonathan P Berry1,3

MB ChB MBA MA

James Black4 FFA

W Alastair Chambers1

MD MEd FRCA FFPMRCA

Judith M Chapman1

MA MB BChir FRCGP DRCOG

Hilary O D Critchley4

BSc (Hons) MBChB (Hons) MD FRCOG FRANZCOG FFSRH FMedSci FRSE

Robert Donald1,3

BDS (Hons) DGDP (UK)

Alan J Fleming2

ACII

Peter McDonald2

MBBS MS (Southampton) FRCS (Eng)

Gillian Needham2

MBChB (Hons) FRCP (Edin) FRCS (Edin) FAcadMedEd

Donald W M Pearson2

BSc (Hons) MBChB FRCP (Edin & Glasg)

Linsey C Semple2

MB ChB FRCGP DRCOG

*Colin J Slevin2

MA (Hons) MBA CA

David Wray (Retired 21 September 2012)MD BDS FDS RCPS FDS RCS (Ed) F Med Sci

Honorary fellowsAlistair D BeattieMD FRCP (Glasg, Lond & Edin) FFPM

J Douglas BellMBChB FRCP (Edin) FFOM DIH

John K DavidsonOBE MD FRCP (Edin & Glasg) FRCR FACR (Hon) FRANZCR (Hon)

Peter EdmondCBE TD MBChB FRCS (Ed & Glasg) FRCP (Edin)

Wallace S FouldsCBE MD ChM FRCS (Eng & Glasg) DO DSc (Hon) FRCOphth (Hon) FRACO (Hon) FCMSA (Hon)

Douglas G GarvieOBE FRCGP

James GrahamMBChB FRCS (Ed & Glasg)

John R GriffithsBA (Oxon) LLB WS

Martin M LeesMD FRCP (Edin) FRCS (Ed) FRCOG

Key

1 Members of the Audit Committee2 Members of the Investment Committee3 Members of the Nominations Committee4 Members of the Remuneration Committee

* Executive directors



MDDUS senior management

Chief executive officer and secretary*Gordon C A Dickson MLitt PhD FCII FIRM

Finance director*Colin J Slevin MA (Hons) MBA CA

Head of professional servicesJames Rodger BSc MBChB BA MBA FRCGP FRCP (Edin) DMJ

General counselSimon Dinnick BA (Hons)

Head of human resources Paul Gray BA FCIPD

Heads

Advisory services (dental division)Aubrey CraigBDS FDS RCPS (Glasg) MPhil MBA

Advisory services (medical division)John HoldenMB BS MPhil MRCGP MFFLM DCH DRCOG

Anthea MartinBMSc MBChB LLB MPhil MFFLM DRCOG PgCert

FinanceRekha Bhatt BSc PgDipAcc FCCA PgCert

Financial controller William G McMillan CA

ICT Theo Theodorou BSc (Hons) ONDA/ONMP PgD IT CCNA MCP PgCert

Information systems Ian Frame MCTS PgCert

Marketing and external relations Gaelle Ainslie BA (Hons) PgCert

Membership services Stephen G Kelly PgCert

Risk management Peter Johnson BSc PgCert FCQI CQP FCMI SIRM

Legal services David Holmes LLB (Hons) Dip LP

Emma Parfitt LLB (Hons) French Diploma of Law

Training and consultancy Liz Price BA MSc MBPS MIHM

Medical and dental advisersRachael BellBDS MPhil MJDF RCSEng PgCert (Dental Anxiety)

Richard BrittainBMedSci BM BS PGDipLaw MRCP

Susan Gibson-SmithMBChB DRCOG MRCGP MPhil

Gail GilmartinMBChB MPhil

Andrew M HaddenBDS MPhil MGDS FDS RCPS (Glasg) FFGDP (UK) Cert Ment RCS (Eng) Cert Pract App RCS(Eng)

Doug HamiltonBDS LLM MJDF RSCEng PG Cert (Empl. Law)

Anahita KirkpatrickMBBS BSc MFFLM

Riaz MohammedMBChB MPhil MD (Glasg) FRCS (Glasg) FRCS (Edin)

Naeem NazemMBChB BSc(Hons) MRCP LLB(Hons)

Caroline Osborne-WhiteMA MB BChir (Cantab) MA (KCL) MRCGP DFSRH

J Barry ParkerMBChB MSc MML FRCGP DRCOG DCCH

Mary M PeddieMBChB MML DRCOG DFSRH FRCGP

Claire RentonBDS FDS RCPS (Glasg) MML

Desmond WatsonMA(Oxon) LLM BM BCh FRCS(Eng) MFFLM

Mike WilliamsBDS LLM DGDP MGDS RCS (Eng) FFGDP (UK)

Employment law advisers Janice Sibbald BA (Hons) HRM MCIPD

Liz Symon MCIPD

Practice advisers Scott Obrzud RN (Dip) PMVTS MIHM

Helen Ormiston MBA Pg Dip MS

Lawyers Lyn Beattie LLB Dip LP NP

James Doake BSc (Hons) Dip Law

Ciara Deasy BA (Hons) Dip Law

Sara Foster BA (Hons) Dip Law

Joanna Harden LLB (Hons) Dip LP

Lindsey M McGregor LLB (Hons) Dip LP NP

Clare Pearce BA (Hons) PG Dip Law

Karen Purchese LLB (Hons)

Denise Ritchie LLB (Hons) Dip LP NP

Susan Trigg BA (Joint Hons) MA PG Dip Law

Management and professional staff

(* Executive members of the Board)

34

35MDDUS Annual Report and Accounts 2012

External professional advisers

Photographic credits

Commissioned photography by Murdoch Ferguson (www.ferguson-imaging.com), Headshot London (www.headshotlondon.co.uk), Patrick White, Apollo Photographs Ltd and Claire Millar

Other photography: Page 8: BMJ; Page 9: ADAM 2012 Conference; Page 10 upper right: NHS Forth Valley; Scottish Clinical Simulation Centre

Management and professional staff / External professional advisers

Auditors BDO LLP Chartered Accountants and Registered Auditors 4 Atlantic Quay 70 York Street Glasgow G2 8JX

Bankers Bank of Scotland 54-62 Sauchiehall Street Glasgow G2 3AH

Internal auditors Deloitte Lomond House 9 George Square Glasgow G2 1QQ

Investment consultants Broadstone Pensions & Investments 55 Baker Street London W1U 7EU

Investment managers Barclays Wealth Aurora 120 Bothwell Street Glasgow, G2 7JT

Brewin Dolphin Sixth Floor Atria One 144 Morrison Street Edinburgh, EH3 8EX

Newton 2 Festival Square Edinburgh EH2 9SU

Royal London Asset Management 30 Cornet Street St Peter Port Guernsey GY1 1LF

Actuaries Milliman UK Consultants & Actuaries 11 Old JewryLondonEC2R 8DU

Insurance advisers Aon Commercial Insurance Sentinel, 103 Waterloo Street Glasgow G2 7BW

Insurance company managers Aon Insurance Managers (Guernsey) Limited PO Box 33 Maison Trinity, Trinity Square St Peter Port, Guernsey GY1 4AT

Solicitors Morton Fraser LLP Quartermile Two 2 Lister Square Edinburgh EH3 9GL

Shepherd and Wedderburn LLP 1 Exchange Crescent Conference Square Edinburgh EH3 8UL

The Medical and Dental Defence Union of ScotlandMackintosh House120 Blythswood StreetGlasgow G2 4EA

London office1 Pemberton RowLondon EC4A 3BG

T: 0845 270 2034 Membership Services Department: 0845 270 2038F: 0141 228 1208E: [email protected]

The Medical and Dental Defence Union of Scotland, Registered in Scotland No 5093 at Mackintosh House,120 Blythswood Street, Glasgow G2 4EA.

The MDDUS is not an insurance company. All the benefits of membership of MDDUS are discretionary as set out in the Memorandum and Articles of Association.

MDDUS Annual Report and Accounts 2012

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