Platform:Since the return of Mary Harney to the hot portfolio of health, her main focus has been on the medical consultants and the move for the first six co-located private hospital sites. But around the corner lurks the very challenging private health insurance industry.

Quinn-healthcare, formerly the Bupa Ireland business, has injected a much-needed impetus into the market. It is, perhaps, somewhat ironic that Bupa could have paid the first instalment of risk equalisation payments.

According the latest unpublished returns from the Irish Financial Services Regulatory Authority and the FSA (the British regulator), Bupa Ireland had a good trading period in 2006. The figures reveal that it increased its earned premiums from €182.94 million in 2005 to €211.3 million in 2006.

Importantly, while underwriting profit before expenses fell from €45.7 million in 2004 to €43.5 million in 2005, it staged a recovery to €53.7 million in 2006, in a year that it was threatening to pull out of the market because of risk equalisation.

However, it was in good financial shape. Administrative costs as a percentage of earned premiums have been running at about 13 per cent. Assuming these were 13.4 per cent in 2006, it appears that Bupa Ireland recorded an operating profit of €25.4 million in 2006.

Basing the risk equalisation payments on the Health Insurance Agency's calculations, it would have had an obligation to pay €20.2 million. This would have left a profit of €5.2 million and give it a margin of 2.7 per cent, a far cry from what had been hinted at.

However, it will be a very challenging period from here for Quinn-healthcare which, so far, has amply demonstrated its talents in a whole host of other areas. In the twilight zone between Bupa's pull-out and Quinn-healthcare's takeover, it lost market share.

Since then, it has increased premium income by 9 per cent and has some 21 per cent market share, according to Quinn-healthcare.

The company has already stated that it will not increase prices this year. This is likely to have major financial implications for this and the following year. It can do little about claims costs, which could rise by some 15 per cent and, on top of that, there is a payment of risk equalisation (disputed by Quinn-healthcare).

With little less than six months to go before its year end, it can hardly influence administrative costs, which last year increased from €24.5 million to €25.7 million, representing 12.2 per cent of earned premiums. This compares with 8.5 per cent for VHI.

The push by Quinn- healthcare for group schemes could help reduce this ratio. It is interesting that every one percentage reduction in administrative costs would represent €2.6 million to the bottom line.

Quinn-healthcare can also redress some of its problems by aggressive marketing, which is now in full flight by all three contenders (including Vivas).

Obviously Quinn-healthcare can only keep a cap on the prices for so long. It is inevitable, therefore, that its prices will have to increase in 2008 and possibly as early as the beginning of the year.

Even if this were to occur, it would not benefit it very much next year because of the staggered benefits that accrue from price increases.

A 10 per cent increase on earned premiums, for example, would boost that premium income by €20-plus million but possibly only a third of this would come through next year. That will test the Quinn-healthcare mettle.

VHI, the incumbent, is also facing a traumatic period.

While its results for the year to February 2007 will show an increase in earned premiums from €919.6 million to just over

€1 billion and a return to a small operating profit from a loss of €50.8 million from the previous year, it is already operating at a 10 per cent to 15 per cent price disadvantage to its competitors.

With the prospect of a 10 per cent increase in prices in September, it faces Herculean competition.