STATE-OWNED health insurer VHI is considering entering the life and pensions market early next year, saying it will have “greater commercial freedom” to launch new products when it comes under the remit of the Irish Financial Services Regulatory Authority from January 2009.

The company said it would also look at launching products outside Ireland in the coming two or three years, once it had secured its insurance licence from the regulator by the end of this year.

The firm reported a surplus of €55.4 million from its day-to-day operations for the year to the end of February, an increase of 63 per cent from the €33.9 million.

The surplus rose to €112.2 million due to an exceptional gain – the release of €56.8 million from the company’s risk reserves.

VHI chief executive Jimmy Tolan said the surplus was “slightly anomalous” due to a lower than expected volume of claims. He estimated that the insurer would generate a smaller surplus – between €15 million and €25 million – from March to December this year, due to increased medical costs and greater demand for more procedures in new facilities.

He said the VHI had not decided on the price increase it would be seeking this year. He said the surplus was “historic” and the “significant” increase in demand and costs needed to be considered.

Premiums increased 12.9 per cent to €1.153 billion during the year, though VHI lost 19,000 customers due to increased competition in the market. Claims rose 8 per cent from €930 million to just over €1 billion, breaking the €1 billion mark for the first time.

Investment income dropped to €7.8 million from €27.8 million due to “difficulties in the investment markets”, the company said.

VHI’s operating cost-ratio fell to 7.9 per cent from 8.2 per cent, which, the company said, made it the most efficient operator in the health insurance market.

The insurer’s solvency ratio rose to 35.2 per cent from 27.9 per cent, though it is still below the 40 per cent requirement for non-life insurers set by the regulator, which has yet to determine how much VHI must hold in reserves.

The insurer believes its ratio should be closer to 30 per cent, though the company said it would meet any shortfall with reinsurance and that it would not need any capital from the Government.

The firm said its solvency ratio would rise to 38.7 per cent if it received €41.6 million in payments for 2006 and 2007 from competitors due under risk equalisation, which are the subject of a Supreme Court appeal from rival Bupa, now owned by Quinn Direct.

VHI is applying for an insurance licence from the regulator under new legislation. It said that, once this was secured, VHI would no longer need government approval to launch new products, allowing it to enter different areas of the wider insurance market.

Mr Tolan said the new legislation would give the insurer “greater commercial freedom”.

VHI recorded 30 per cent growth in revenue from products outside its hospital insurance plans. Some 450,000 customers have bought other VHI insurance products, such as multi-trip travel insurance which has been purchased by some 350,000 customers.

Declan Moran, the company’s director of marketing and business development, said the growth in new product sales has prompted the insurer to consider launching other products into the market.

“From January next year we will be free to expand into other areas. We are relatively limited at this moment in time,” he said.

VHI said it would consider launching “people-related” insurance products aimed at its own customers, such as products to fund long-term care for the elderly.

Mr Tolan said: “The State is trying to solve the long-term care issue. We believe we can design products around that as well.”

The insurer said it would seek a partner for its new products.