Government to seek deadline extension for Central Bank authorisation of VHI
Extension from the European Commission would allow the VHI achieve required level of solvency without injection of exchequer funds
The Cabinet agreed yesterday to seek the extension on the basis that it would allow the VHI achieve the required level of solvency without the injection of exchequer funds. The insurer faced a capital shortfall of €220 million in 2011, but this has been cut through reinsurance and cost savings.
Earlier this year the VHI entered into a deal with Berkshire Hathaway – the company run by billionaire investor Warren Buffett – to reinsure about €700 million of the company’s claims, about 50 per cent of the total. The company said the reinsurance deal with Berkshire Hathaway would minimise the amount of capital required from Government. A spokesman for the Department of Health said last night that this route “had real potential”.
Joaquín Almunia, the European commissioner for competition, is to visit Dublin this week but the spokesman said he was not expected to discuss the issue with the Government. Minister for Health James Reilly will travel to Brussels next week, he said.
If it is unsuccessful in winning the extension the Government faces possible fines and a State aid investigation by the commission which is concerned about the distortion of the health insurance market by the VHI’s State ownership and what it believes is an implicit guarantee of support.
Following a European court case in 2011, the Government was given until the end of the year to achieve authorisation, which requires the VHI to meet the same capital and solvency requirements as its rivals. This would have required the injection of about €220 million into the company, according to 2011 estimates, but the VHI has reduced this figure through resinsurance and cost savings.
The company said last week in its annual report that it will seek a further €100 million in cost savings annually over each of the next three years.
A second key element of the Central Bank authorisation process is that the VHI must show it has a sustainable business model. An important aspect of this area is the risk equalisation scheme that will apply.
Last October the VHI said it could not seek authorisation unless it was satisfied it had a sustainable business model which required clarity on a future regulatory framework to allow it “to complete business plans, including securing capital to present to the Central Bank”.