VHI, THE Republic’s largest health insurer, has recorded a financial surplus of €7.4 million for last year.

However, chief executive Declan Moran warned that the company still did not have a financially sustainable model and would need to generate surpluses in the region of €50-€60 million a year.

VHI said its health insurance operation continued to lose money but that its diversified businesses, such as its travel and dental insurance products and Swiftcare emergency treatment centres, were profitable and had contributed €51 million in income to the company.

The company did not provide breakdowns of the level of profitability in its different units.

It said its cost-containment strategy helped it make savings of €100 million last year.

Last year’s surplus was the first posted by the company since 2007. In 2010 it had a deficit of €3.1 million and made losses of €41.7 million in 2009.

But the company said that the business decisions it took last year – which included highly controversial subscription-price increases of up to 45 per cent in some cases – had been “absolutely necessary”.

VHI said its earned premium for last year was €1.314 billion – down 1.6 per cent on 2010. Total claims amounted to €1.234 billion.

During the year the company lost 117,000 subscribers while about 200,000 others opted to lower their level of insurance cover.

Mr Moran said the company was dealing with more claims but for less money as a result of cost-containment initiatives undertaken with hospitals and doctors.

It is to renegotiate fee levels with medical consultants in the summer and, although it said it had not yet concluded its internal position in relation to these yet, Minister for Health James Reilly has already signalled that the State-owned insurer would seek further cuts in payments.

Mr Moran also expressed concern at the rising cost of private beds in public hospitals which, he said, had increased by 41 per cent since 2009.

“The rates charged by public hospitals are set by the Department of Health and are not subject to negotiation, making it difficult for VHI Healthcare to introduce cost efficiencies in this area. This is something we would call on the Minister to look at.”

Mr Moran said that as a result of tough negotiation with providers, combined with a firm focus on reducing administration costs and driving efficiencies across the business, it had made savings of nearly €200 million since 2009.

He said the company had now engaged Milliman consultants “to carry out a utilisation management review of our claims and advise if further efficiencies can be achieved in this way”.

VHI said it remained a financially strong company with liquid assets of €781 million. It has financial reserves of €295 million.

However, Mr Moran estimated that it would need a capital injection of between €200 million and €250 million to allow the reserves to be brought up to a level that would allow authorisation by the Central Bank.

VHI chairman Bernard Collins said 2011 had been a difficult year for both the company and the private health insurance market but that “a number of business strategies driven by the board and the management team are helping to put VHI Healthcare back on a sustainable footing for the future”.