Ireland’s Medical Insurer Vhi Extends Buffett Reinsurance Deal by Four Years

By | June 17, 2014

Vhi Healthcare, the Irish state-owned medical insurer, extended a reinsurance accord with Warren Buffett’s Berkshire Hathaway Inc. as it seeks to move risk from its balance sheet and avoid a taxpayer bailout.

Berkshire signed a one-year accord last July to reinsure half of Dublin-based Vhi Healthcare’s policies, which paid out €1.4 billion ($1.9 billion) in claims in 2012. Vhi entered a deal with Omaha, Nebraska-based Berkshire for four more years, it said in an e-mailed statement today, which didn’t give any financial details.

Vhi, set up in 1957, is seeking to bolster its balance sheet after applying last month for Irish central bank authorization for the first time. The European Union Court of Justice ruled in 2011 it was in breach of EU law for not being regulated or subject to solvency rules. Health Minister James Reilly said in May that Vhi, operating as a monopoly until 1996, had signaled plans to fund its own regulatory capital needs and not rely on government aid.

“Putting in place a long-term reinsurance arrangement and demonstrating that the business was sustainable in the long term was critical in making our submission to the central bank,” Vhi Chief Executive Officer John O’Dwyer said in the statement.

Berkshire has an AA credit rating at Standard & Poor’s, making the company an attractive partner for risk-transfer reinsurance deals. While Vhi doesn’t have a credit rating as it has no long-term borrowings, S&P has an A- stance on the Irish state, the highest among the three main ratings firms.

Premiums Rise
Vhi’s net income rose to €65 million [$88 million] last year from €54.3 million [$73.7 million] in 2012, as earned premiums increased 4.1 percent to €1.49 billion [$2.02 billion] and gross claims fell 2.1 percent to €1.37 billion [$1.86 billion], it said.

Ireland missed an end-2013 deadline set by the European Commission for Ireland to ensure Vhi is compliant with EU law and end its “unlimited state guarantee.” The government sought permission to extend the timeframe to the end of this year, Reilly told lawmakers in parliament in February.

About 270,000 people in Ireland have dropped private health insurance since the nation’s real-estate market collapsed in 2008, leaving 44 percent, or just over 2 million people, covered by such plans, the Health Insurance Authority in Dublin said in May.

Vhi had about 56 percent of the market and paid out 67 percent of claims in 2012 because of its higher proportion of clients over the age of 60, Reilly said in December. Last year, the EU approved an Irish plan to compensate insurers with aging and less-healthy customers. Vhi stands to be the main beneficiary as rivals become net contributors, according to the EU Commission.

Laya Healthcare, where insurance is underwritten by Swiss Re’s Elips Insurance Ltd., Aviva Plc, and GloHealth, backed by Munich Re and Great-West Lifeco Inc.’s Irish Life Group Ltd., are the three other health insurers, ranked by market share.

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