PLANS TO bring the country’s largest health insurer, the VHI, under the regulation of the Irish Financial Services Regulatory Authority – a move likely to require an investment of at least €100 million – have been delayed for several months.
The Government, which faces court action by the European Commission for failing to implement an adequate regulatory regime to oversee the VHI, had initially set a deadline of September 1st for the State-owned company to be authorised by the Financial Regulator.
However, the Department said yesterday that Minister for Health Mary Harney had now extended this deadline to December 31st, 2009. The VHI said it understood the Minister intended to bring proposals to Cabinet shortly in relation to its future regulation.
The health insurer benefits from an exemption from the general insurance supervisory regime established by two EU non-life insurance directives, even though the firm has expanded beyond the health insurance market. This means the company does not have to meet some obligations required of its rivals in the Irish market such as setting aside reserves for a minimum guarantee fund and meeting solvency levels.
Ms Harney said earlier this year that the Government was addressing the issue of having a level playing pitch for all health insurers and ending the VHI’s special derogation under directives on insurance from prudential regulation by the regulator.
She said the Government had decided the VHI should be in a position to attain authorisation from the regulator and satisfy its prudential requirements as soon as possible.
However, The Irish Times understands the VHI requires a capital injection of more than €100 million to bring its financial reserves up to the level to allow it to secure authorisation. In essence, the VHI needs to bring its reserves up to 40 per cent of premium income.
The company had intended to use millions of euro it hoped to receive under a controversial risk-equalisation scheme to boost its reserves. However, this plan evaporated after the Supreme Court struck down the scheme in 2008.
The VHI said the regulator required a solvency ratio of 40 per cent compared to 28-30 per cent in other jurisdictions. It said a proposed new EU directive, Solvency 11, would “ensure consistency across Europe and will be closer to 30 per cent”.
“It is a strategic imperative for us to achieve regulation. We are exploring how to bridge the gap – a 40 per cent solvency requirement will require additional equity as well as re-insurance and/or subordinated debt,” the VHI said.
Ms Harney told an Oireachtas committee earlier in the summer if the Government was “to force the VHI to be regulated in the morning and it was not regulated, it would go under, with 1.5 million customers, and no one wants to see that happen”.