VHI raises €90m and announces after-tax surplus of €49m

Ciarán Hancock

State-owned VHI has raised €90 million in subordinated debt from Warren Buffett's conglomerate Berkshire Hathaway to boost its reserves and pave the way for it to become an authorised entity from July 31st.

This brings its capital reserves to more than €540 million, meeting the solvency requirement of the Central Bank of Ireland. VHI's rivals had for years pressed for the State company to become a regulated entity, even taking a case to the European Union. Being regulated requires VHI to have a certain level of reserves and puts it on a level playing field with its private competitors.

VHI also announced an after-tax surplus of €49.8 million for 2014, down from €65 million in the previous year. Its gross earned premiums reduced by 1.9 per cent to €1.46 billion.

The surplus recorded last year represented a margin of 3.4 per cent, a reduction of almost one percentage point on 2013.

The subordinated loan from Berkshire Hathaway has a seven-year duration. VHI declined to detail the interest rate that is being charged but confirmed that an arrangement fee was paid to the well known US-based group.

The insurer extended its reinsurance arrangement with Berkshire Hathaway by four years in 2014.

VHI chief executive John O'Dwyer told The Irish Times that a bond had also been considered and expressed his satisfaction at the company being able to become a regulated entity without tapping the State for additional funds.

“We are very pleased to have raised the money ourselves without any recourse to the taxpayer,” he said.

Mr O’Dwyer said VHI had “long conversations” with two other groups during its capital raising exercise before choosing a deal with Berkshire Hathaway.

As a result of being authorised by the Central Bank, the VHI has set up two new companies to take on the business of the statutory board. These are VHI Insurance Ltd, the underwriter, and VHI Healthcare Ltd, the sales channel.

Mr O’Dwyer said he was “thrilled” that VHI was now a regulated entity as it “brings stability” and it puts the group in a strong position to deliver on its business strategy over the next five years.

He said VHI was now a “more valuable asset” for the State as a result of being regulated and having stabilised its financial performance in the past three years.

The insurer said €1.377 billion was paid in claims to customers last year compared with €1.365 billion in 2013. Investment income rose by €3.6 million to €17.6 million in the year while its tax charge reduced to €6.8 million from €8.9 million in the previous 12-month period.

The company’s reserves rose by €65 million to €453 million in 2014.

Mr O’Dwyer described its financial performance last year as “strong” and its priority was to “continue to drive down costs, increase efficiencies and provide appropriate health insurance plans and services” to customers.