July 25 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. will reinsure about 700 million euros ($923 million) in claims for Ireland’s state health insurer, which is seeking to stem losses and its burden on taxpayers as the population ages.
Vhi Healthcare and Omaha, Nebraska-based Berkshire signed a deal for one year, which Vhi will seek to extend, Brighid Smyth, a spokeswoman for the Dublin-based insurer, said by phone. She declined to give terms of the agreement, which will cover half of Vhi’s 1.4 billion-euro claim book.
The agreement may save Irish taxpayers as much as 90 million euros, Smyth said, as Vhi will require a smaller boost to its reserves given Berkshire’s assumption of some of the insurer’s risks. Berkshire, rated AA by Standard & Poor’s, is willing to take on risks that other insurers are looking to unload in deals that give Buffett, 82, more funds to invest.
“This should help reduce our capital requirements and minimize the amount of capital required from government,” Smyth said. “We are working on securing a longer-term partnership.”
Vhi, founded by the government in 1957, had a monopoly on health insurance until 1997. It lost 7.2 million euros last year underwriting private health care as the mix of its customers aged and it paid out more for medical procedures.
The number of Vhi customers under the age of 60 has shrunk by 29 percent over the past eight years, while clients older than 60 have risen by 12 percent. By the end of this year, Vhi is set to become regulated by the Irish central bank, which may demand higher reserves.
Vhi reported a surplus after tax of 54.3 million euros in 2012 after it booked a one-time retirement credit and its investments returned to profit.
“While the surplus recorded this year is very welcome, we will need to build on this in the coming year,” John O’Dwyer, chief executive officer of Vhi, said when the insurer posted its yearly figures in June. “We will need to record a surplus of at least 60 million euros each year if we are to maintain the correct solvency level required for authorization.”
The insurer booked investment returns of 19.4 million euros last year, compared with a loss of 23.5 million euros in the previous 12 months. The company’s reserves rose 22 percent to 324 million euros in the period.
The Irish Times reported in April that the government may have to invest as much as 200 million euros in Vhi to satisfy the nation’s central bank.
A year ago, the European Commission called on Ireland to end what it called an “unlimited state guarantee” for Vhi.
Buffett’s company agreed last month to buy a U.K. annuity business from Hartford Financial Services Group Inc., adding $1.75 billion in assets under management. Cigna Corp. agreed in February to give Berkshire $2.2 billion to take on liabilities tied to retirement products. Hartford is seeking to increase its focus on property-casualty coverage, while Cigna sells health insurance.
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