The VHI, the State-owned health insurer that is seeking to be privatised, has reported a 130 per cent rise in profits to €33.8 million in the 12 months to the end of February 2003.
Despite the surge in profits, the VHI will increase premiums by 8.5 per cent this year stating that this is necessary to ensure its financial viability. The rate increase has been approved by the Government and will come into effect for members as they renew their policies from September 1st.
The insurer says it needs to build its reserves in order to remain viable as an organisation. "Despite the satisfactory results, our reserves are still well short of the 40 per cent of premium income which, in commercial terms, is regarded as the minimum level at which insurance companies should operate," said chairman Mr Derry Hussey.
Premium income in the year rose 13.6 per cent to €735.4 million. Reserves at the end of the year stood at €215.7 million, up 18.6 per cent following the transfer of the €33.8 million profit, but they still represent just 29.3 per cent of premium income.
The organisation's robust financial performance will be noted by any potential buyers interested in acquiring the business. A sale of the insurer could raise more than €300 million for the Government. VHI senior management and staff would also stand to benefit financially from the sale.
The VHI has signalled that it is keen to initiate discussions with the Department of Health to establish a process through which the VHI can be sold.
Speaking to The Irish Times yesterday, VHI chief executive Mr Vincent Sheridan said it was only echoing the need for greater commercial freedom identified in the Government's White Paper on the health insurance sector.
The VHI has again expressed its frustration with the slow pace at which risk equalisation - the sharing of the cost of claims by all insurers in the market - is being introduced.
Mr Sheridan played down the large increase in profits stating that 2002's €14.7 million profits were an aberration following a 2001 figure of €28 million.
In 2004, the VHI expects to generate profits of €35-€40 million.
The 2003 profits suggest that the VHI earned €22 in profit from each of its members, up from €10 in the previous year.
The insurer said it paid out €89 of every €100 in premiums contributed by its 1.55 million members in 2003. During the year some 70,000 new members joined the VHI.
The amount paid out in claims rose by 15 per cent to €595 million. The health insurer managed to contain its operating expenses at broadly the same level over the 12 months at €58 million.
Profits received a substantial boost from a 56 per cent rise in investment returns to €24.7 million. Mr Sheridan said the VHI decided to sell its entire equity portfolio in 2001 and invested its free reserves in the bond markets which delivered a good performance during that period.
