Wednesday 18 October 2017

Warren Buffett firm competes for €800m deal to plug VHI gap

Warren Buffett, CEO of Berkshire Hathaway, addresses The Women's Conference 2008 in Long Beach, California in this file image from October 22, 2008. Stock futures added to gains on August 25, 2011 after Warren Buffett's Berkshire Hathaway Inc agreed to invest $5 billion in Bank of America Corp. S&P 500 futures rose 10.3 point and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 87 points and Nasdaq 100 futures gained 0.5 point. REUTERS/Mario Anzuoni (UNITED STATES - Tags: BUSINESS HEADSHOT)
Warren Buffett, CEO of Berkshire Hathaway, addresses The Women's Conference 2008 in Long Beach, California in this file image from October 22, 2008. Stock futures added to gains on August 25, 2011 after Warren Buffett's Berkshire Hathaway Inc agreed to invest $5 billion in Bank of America Corp. S&P 500 futures rose 10.3 point and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 87 points and Nasdaq 100 futures gained 0.5 point. REUTERS/Mario Anzuoni (UNITED STATES - Tags: BUSINESS HEADSHOT)

Roisin Burke

Discussions on an €800m deal between the VHI and Warren Buffett's Berkshire Hathaway and others are ongoing as the semi-State insurer seeks ways to plug its circa €270m annual solvency gap.

Berkshire covers half of VHI's €1.4bn book until April but an extended three-year deal is needed if the taxpayer is not to be on the hook for solvency shortfalls at the insurer.

Late last year Buffet's big international reinsurance company was the only name in the frame but VHI says that it is in discussions with several other parties.

Uncertainty about the future of VHI at Government level was cited as a difficulty in getting a more extended deal with Berkshire last year.

The deadline for the VHI to have met solvency targets set by the Central Bank was extended by 12 months late last year, further adding to uncertainty.

VHI missed at least seven deadlines to meet the solvency targets it needs to be regulated on the same footing as its competitors GloHealth, Aviva and Laya, an insurance industry executive said.

"We are looking at a range of options regarding capital and reinsurance is one of those," said VHI's spokeswoman. "We are in discussions and expect to have arrangements finalised within the next two months or so. We would like to raise all the money ourselves rather than rely on the State."

A one-year deal between Berkshire and VHI saves taxpayers up to €150m. Berkshire gets both fee and premium income as part of the deal, it is believed.

VHI needs to set aside 40 per cent of its insurance premiums income to be regulated by the Central Bank, but has only 21.5 per cent reserved, leaving around €270m of a solvency gap.

The European Court of Justice has made several findings against the State due to the failure to bring VHI under the regulation.

The State is now exposed to penalties from the EU due to its failure to regulate the insurer.

Calls to Berkshire Hathaway's Dublin office chief executive Viviana Pascoletti were not returned on Friday.

Berkshire Hathaway has had an Irish office for many years, but the VHI contract was its first major local reinsurance deal.

The lack of regulation by the Central Bank means that VHI, unlike the other health insurance company competitors operating in Ireland, doesn't have to set aside a minimum of 40 per cent of its premiums.

The current situation means that VHI is incapable of being put into liquidation and is not subject to any regulation as an insurance undertaking by the Central Bank.

The European Court of Justice ruled against the State in September 2011, requiring that VHI be regulated in a similar fashion to all the other non-life insurers. It noted that "discriminatory" structures were in place in the Irish health insurance market.

The court refused the State's application to suspend implementing the judgement and required it to address the situation immediately. It required VHI and its subsidiares to be incorporated as private limited companies by December 31 last at the latest.

Numerous timetables have been set for VHI to be regulated. Meanwhile, solvency levels have slipped from 27.7 per cent of premiums in 2008 to 21.5 per cent in 2012.

Irish Independent

Also in Business