VHI has been given a deadline of May by which it must apply for authorisation from the Central Bank, as the European Commission steps up pressure on the insurer to move to a fully regulated model.
The commission has been intensifying its scrutiny of the Irish health insurance market, following the recent 12-month extension of the deadline by which the Government must adhere to the terms of a European Court of Justice ruling which found VHI’s status as a non-regulated entity to be discriminatory.
Officials from the Department of Health have held discussions with senior officials from the commission's directorate-general for competition amid concern in Brussels that the State has missed a number of deadlines on the issue.
VHI has now been given an effective deadline of May by which it must apply for authorisation by the Central Bank, The Irish Times understands. According to individuals involved in the discussions this is to ensure the Government meets the December 2014 deadline announced in December.
While a key element of the authorisation process is the requirement that VHI has a sustainable business model – an issue that rests on the form of risk-equalisation scheme that will be adopted – the other central element is the insurer’s adherence to solvency requirements.
Under the authorisation process VHI, like all other non-life insurers, is required to have a solvency margin of at least 150 per cent of assets over liabilities, and a solvency ratio of 40 per cent, ie the company’s free assets should equate to 40 per cent or more of the company’s net written premiums over the previous 12 months. VHI’s solvency levels have been falling since 2007 and stood at about 21.5 per cent in 2012.
VHI is continuing to pursue private investment opportunities in order to avoid tapping the State for funds, having already struck a deal last year with Berkshire Hathaway, the company run by billionaire investor Warren Buffet, to reinsure about 50 per cent of the company's claims.
Because VHI is set up as a statutory body its non-life insurance business is not subject to regulation and the associated solvency requirements required by its competitors in the Irish market.
A 2011 ruling by the European Court of Justice found that practice discriminatory, ruling that VHI should be regulated in the same way as other non-life insurance providers in the State. In July 2012 the European Commission wrote to the Government requesting that the State end its unlimited guarantee to VHI, arguing that this provided VHI with a commercial advantage over its competitors. It also called on the government to incorporate one or several subsidiaries of VHI as private limited companies, which would take over VHI’s economic activities and be governed by Irish company law.
A spokesman for the commission’s competition commissioner Joaquín Almunia said his department and officials from the EU’s internal markets division were in “close contact with the Irish authorities concerning the current difficulties to respect the original deadline and the delays in the authorisation process”.
A Department of Health spokesman said officials are “in regular contact with the European Commission in relation to the authorisation and related issues, with a view to achieving the year-end time frame.”
Ireland could face significant fines and a State aid investigation if it does not meet the new year-end deadline.
According to the Health Insurance Authority two million people were insured at the end of September last year, a fall of 62,000 or 3.2 per cent in a year, with the number of people aged 18-29 with health insurance declining by 10 per cent
