EU court rules VHI must beef up its reserves by €300m

THE VHI is illegally operating as an insurance company with just half the amount of money set aside to meet commitments that it is supposed to have under EU law, the European Court of Justice has found.

It must find around €300 million immediately to bring its reserves up to the minimum, the court said, dismissing claims by the Government that it could not afford to do so and that it would cause difficulties for the VHI, or upset the private health insurance market.

The court also ordered the state to pay the costs of the action.

The VHI, which insures 1.2m people making up more than 60% of the total private health insurance market, was excluded from having all the usual security and financial guarantees required under EU law, but as a result had to limit their business to providing health cover, the court was told.

But over the past few years their remit was extended by the government three times, allowing them to offer additional services such as travel insurance.

The most recent, in 2008, introduced by then health minister Mary Harney, allowed for VHI expansion into operating medical facilities and providing pensions and financial services and committing to meeting all the solvency rules by the end of the year. This, the court said, changed its status.

Following various warnings from the European Commission, the Irish authorities agreed to end the derogation and said that they were going to make the necessary changes. This included doubling the company’s reserves from 20% to 40% of their premiums.

But the Government then argued that they were unable to do this because of the Supreme Court judgment in July 2008 on the risk equalisation scheme and the collapse of the financial markets. They added that they had given a commitment to rectify the situation.

However, the Commission referred the issue to the courts because, they said, in spite of the advances made by Ireland, the VHI continues to carry out all its business activities without having received authorisation from the Financial Regulator.

The Government argued in the court that the additional activities of the VHI were still related to the original basic activity of voluntary health insurance and argued that the ancillary activities for 2009 were very small, amounting to just 1.3% of total revenues.

But the court disagreed.

“Given that, at the very least, the power of the VHI to act as an agent on behalf of other insurers under an international healthcare plan, or the right to carry out advisory activities go beyond the basic activities that it was authorised to carry out on the basis of the 1957 Act, it must be held that Ireland’s line of argument cannot be accepted, irrespective of the financial significance of those new activities with regard to the entire revenue of that body, as no provision is made for this in the First Directive”.