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Thursday 18 September 2014

Warren Buffett deal with VHI will save taxpayers €200m

Billionaire's lifeline will also reduce pressure for further premium hikes

Charlie Weston Personal Finance Editor

Published 17/06/2014 | 02:30

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Warren Buffett
Warren Buffett

RELENTLESS pressure on health insurance customers is expected to ease after the country's largest health insurer extended a lucrative deal with billionaire investor Warren Buffett.

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The VHI's new four-year contract with a company headed by Mr Buffett is also set to save millions of euro for taxpayers.

His Berkshire Hathaway holding company has signed an agreement to take over some of the risks of VHI, in what is known as a re-insurance deal.

Head of the VHI John O'Dwyer said the deal is set to save taxpayers from having to pump up to €200m into the company and will help keep down premium hikes for the insurer's one million-plus customers.

"This is a good deal for VHI customers and it is a good deal for the Exchequer," Mr O'Dwyer said.

Families have faced huge costs in order to keep up health insurance payments in recent years, as premiums have doubled since the start of the economic downturn.

The spiralling costs have forced as many as 266,000 people to completely drop out of the market for private health insurance, and has pushed many others to downgrade their cover.

The most recent VHI hike was announced in January and meant families would have to pay an extra €250 a year for cover.

The annual cost of some of its plans has shot up by more than €1,000 during the past few years.

Insurers have blamed cost pressures that forced them to announce multiple rises in the past five years.

But Mr O'Dwyer said the focus of the VHI would be to continue to keep premium rises to a minimum, by keeping claims costs down.

"We remain focused on keeping prices as low as is feasible, and on delivering back savings through offers and promotions where possible," he said.

The VHI boss said the four-year deal with Warren Buffett's company would put the insurer on a sound footing and take away some of the pressure that has meant multiple premium rises in the past couple of years.

He also pointed out that in the past two years the VHI has had the lowest premium increases in the market.

However, it did increase premiums by an average of 3pc in March this year, although some plans went up by more. And last year the average premium went up by 6pc.

The deal with Mr Buffett's Berkshire Hathaway also removes the threat of fines from the EU over the failure of the VHI to put sufficient reserves in place up to now.

Mr Buffett (83) is estimated by 'Forbes' magazine to be worth $58bn (€43bn), and is renowned as the world's most savvy investor.

It is seen as a major achievement to get the company he leads to commit to a four-year deal with the VHI.

The new deal extends a previous one-year deal, which had surprised market watchers.

Mr Buffett is the chairman, CEO and largest shareholder of Berkshire Hathaway.

The agreement with one of the richest men in the world involves his Berkshire Hathaway firm insuring some of VHI's claims.

Effectively, large chunks of the VHI's health insurance claims are being laid-off with Berkshire, though customers will still deal with VHI.

Mr O'Dwyer said the deal would save taxpayers between €150m and €200m. This was the amount of money the Exchequer was expected to have to pump into the VHI to boost its reserves.

EU officials are pressing the Government to have VHI regulated by the Central Bank, but its reserves have been too low up to now.

VHI would have needed between €150m and €200m put into it from taxpayer if it had not been for the re-insurance deal with Mr Buffett's company.

It is understood it will cost the VHI around €20m a year in fees to cover the cost of the re-insurance arrangement with Berkshire Hathaway.

Mr O'Dwyer said: "This is a major vote of confidence in the VHI from a highly respected company."

News of the re-insurance deal, that runs up to 2017, came as the VHI said it made profits of €65m last year, up from €54.3m in 2013.

The semi-state company now has reserves of €389m which should mean the Central Bank will approve it to be regulated as a standalone entity, without needing to fall back on a State guarantee.

An application to be regulated by the Central Bank was submitted last month. 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.

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

The court ruled against the State in September 2011, requiring that VHI be regulated in a similar fashion to all the other non-life insurers.

It also noted that "discriminatory" structures were in place in the Irish health insurance market.

Irish Independent

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