Michael Kennedy (Dublin North, Fianna Fail)

Under the 1972 directive, VHI, with other insurers, was granted a derogation from meeting the prudential obligations to be met by most insurance undertakings. VHI has continued to operate as a statutory body and is exempt from the prudential requirements of the Financial Regulator, an independent prudential regulator having responsibility for all authorised insurers.

As of 28 February this year the board of VHI maintains a significant level of reserves amounting to over €292 million. That amount is well above the minimum requirement of the European Union. It is approximately €147 million short of the level that established insurers with VHI premiums and claims experience could be required to maintain by the Financial Regulator. The proposed changes to the VHI Acts contained in the Bill are consistent with the policy set out in the White Paper on health insurance published in 1999. It is proposed to give full commercial freedom to VHI and place its relationship with the Minister on a more appropriate footing, and to remove its exemption from meeting solvency requirements.

The European Commission has also taken an interest in developments in the market, having regard to overseeing the operation of the insurance directives, complaints made to it by other market participants and the provisions of the treaty. It recently emphasised the need to address VHI's derogation as a matter of urgency. I welcome the Government's decision in April, having regard to the developments in the overall marketplace, that in the best interest of the health insurance market and VHI, the company should attain authorisation as an insurer in the shortest possible timeframe, if possible by the end of 2008, and that it be subject to the same prudential regulation as other commercial insurers.

I also welcome the fact that the main provisions in the Bill are aimed at providing VHI with a structure that would be acceptable to the Financial Regulator when the application for authorisation is made. It is only right and proper that VHI would conform to this, with all other insurers. This involves giving commercial freedom on products and pricing to VHI and also the capacity to establish stand-alone subsidiaries. VHI should not be constrained any more than any other insurance company.

The substitution proposed under section 3(c) is a significant change to section 2 of the 1996 VHI Act.

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