Aviva commits to Irish health insurance market

That pending regulatory reform of
Ireland’s private health insurance (PHI) industry is set to improve
its competitive landscape appears to underlie an announcement that
Hibernian Group, UK insurer Aviva’s wholly-owned Irish insurance
subsidiary, is to formally enter the market.

Hiberian’s entry comes via its proposed acquisition of a 70
percent stake in Ireland’s smallest health insurer Vivas Health
from Allied Irish Banks (AIB) for an undisclosed sum.

AIB will retain a 30 percent stake in Vivas which had total assets
of €88.9 million ($140 million) at the end of 2007. The deal
follows an alliance entered into between Vivas and Hiberian in
February 2007 to jointly develop Hiberian’s first health insurance
product.

Hibernian CEO Stuart Purdy, said: “This acquisition brings us
significant growth potential by combining our distribution reach
and brand strength with the innovative and competitive Vivas Health
product range.

“It will position us as a provider of the full range of life,
non-life and healthcare products, strengthening our role as
Ireland’s leading multi-line insurance group.”

Hibernian is Ireland’s number one provider of general insurance and
a top three provider in the life and pensions market.

Established in 2004, Vivas has a about a 5 percent share of the
Irish PHI market that totals about 2.3 million members. Vivas is
one of three players in the market, the largest being the Voluntary
Health Insurance Board (VHI) a quasi state owned entity with a
market share of about 70 percent. The third industry member, Quinn
Healthcare, is a subsidiary of Quinn Group, a privately owned Irish
company.

Quinn Group entered the Irish PHI market in February 2007 when it
acquired the Irish unit of Bupa, the UK’s largest private health
insurer. Bupa exited the Irish market as it believed its ability to
operate profitably was seriously compromised by the private health
insurance risk equalisation payments scheme (RES) that came into
force in January 2007. The RES, argued Bupa, strongly favoured the
VHI. According to Bupa, under the RES it would have been required
to pay €161 million to VHI as a cross subsidy between 2007 and
2010.

Bupa’s exit heralded in regulatory change and the Irish
government’s commitment to encourage competition and new entrants.
Among key reforms announced in April 2007 are that VHI become a
conventional insurer by the end of 2008 and moderation of RES
cross-subsidisation. The government also stated that it has “an
open mind” on VHI’s future ownership.