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Premium rise makes sale of insurer more likely

THE Government will shortly appoint advisers to prepare the VHI for sale and yesterday's rise in premiums makes privatising the company more likely.

In May the Government announced a plan to sell the company into the private sector, but this is not likely to happen until 2012.

The company would be likely to fetch about €500m, with Australian and US firms most likely to snap it up.

Before any of that happens, the firm has to find about €220m to strengthen its position and pass strict regulatory rules set down by the Financial Regulator for insurance companies.

This money will have to come from the Government.

However, by raising premiums the loss-making insurance company will be in a stronger position to attract a suitor. Premium increases will either help the company make a profit or at least cut its losses, preserving the value of the company.

While the size of the VHI in Ireland and its market share will be attractive to buyers, this is only if a new risk-equalisation scheme is in place.

This scheme is designed to compensate VHI financially for having an older customer base than other health insurance companies.

In order to be attractive to the private sector, the VHI has to restore its profit margins to about 4 to 5pc and the latest premium increase is one of the steps towards doing this.

Irish Independent