Next Tuesday ends the consultation period for new submissions on the Health Insurance Authority's preliminary decision to force BUPA Ireland to pay over €25 million per annum to the State-controlled health insurance company, VHI. This is designed to compensate VHI for the costs associated with its older customer base.

VHI has warned that its profits will be down in the year ended February 2005 and it may incur a loss this year if it doesn't receive the payment. It would not receive the full payment until March 2007; prior to that it would receive smaller proportion amounts.

Predictably, BUPA is up in arms against this levy which comes under the "risk equalisation" process. It can be expected to use all means to stop/postpone its implementation, including a possible injunction, if Tánaiste and Minister for Health Mary Harney approves the proposals.

It is already taking the European Commission to the European Court following the commission's approval of risk equalisation.

So how could BUPA Ireland cope with such levies?

Financial figures are difficult to find. It is exempt from filing accounts with the Irish Companies Office because "its debts are guaranteed" by BUPA in the UK, according to a spokesman. He would not disclose any financial figures for the Irish operation other than saying it has 410,000 members. Such numbers, would be "commercially sensitive", he said, adding, "We don't comment on financial numbers." He stressed that all regulatory requirements are met by the company.

BUPA Ireland would not even disclose the level of its premium income.

That stance is reminiscent of the worst of the 1960s when many companies refused to disclose the level of sales because of a staid competition excuse. Thankfully in this era of transparency that has changed. But not for BUPA Ireland, which must be one of the most secretive companies operating here. This raises the question: what is it hiding?

So what are the facts? BUPA Ireland is a tied agent of BUPA Insurance which files returns in the UK. However, in a retrograde step, that UK company does not give a geographical breakdown.

"The disclosure of the geographical segmental analysis would be prejudicial to the commercial interest of the company.

On this basis no disclosure has been made", according to its last annual report.

Thankfully, it has also had to make more detailed returns to the Financial Services Authority in the UK. Filed in the British Companies Office, these are revealing.

Under a separate euro accounts section (BUPA Ireland), the gross premium income is shown to have almost trebled from €41.1 million in 2000 to €115.1 million in 2003.

In contrast, VHI's gross premium income rose by just 47 per cent to €803 million in a similar period to 2003/4.

Significantly, BUPA Ireland's claims paid amounted to €68.3 million in 2003, representing only 59.4 per cent of premiums. In contrast, VHI had claims of €638.4 million, giving a ratio of 79.5 per cent, reflecting its higher age profile.

How do these figures compare with BUPA Insurance in the UK?

If BUPA Ireland's figures are taken out of the group accounts, then BUPA Insurance showed a claims-to-earned- premium-income ratio of 76.5 per cent in 2003, or close to VHI's ratio but way ahead of BUPA Ireland's.

With these sorts of differences, it could be argued that BUPA Ireland, with its large cash flow, is subsidising the British operation.

BUPA Ireland generated a cash flow (before administrative expenses) of €46.7 million in 2003 (more than double the level in 2000). Tellingly, that represents a whopping 41 per cent of premiums.

When compared with BUPA Insurance UK (excluding the Irish operation), which had a ratio of 23 per cent and VHI with 20 per cent, it is obviously a very profitable organisation.

The filings do not provide figures for administrative expenses or profits.

So what operating expenses ratio should be taken to make an estimate about BUPA Ireland's profits? Some reports said it operates on an operating expenses ratio of 19 per cent. If it does, then it is either extraordinarily inefficient - hard to believe - or it reflects a high degree of transfer costs to the UK and would, in effect, distort the real profits generated.

The British group has a high ratio of some 17 per cent, but this can hardly be used either because it reflects the extra expense of paying brokers, a situation that does not exist here.

VHI is relatively efficient with an expense ratio of 8 to 9 per cent but this probably reflects the large number of major group schemes which are relatively inexpensive to operate.

That brings us to an average of 10 per cent to 12 per cent which is used by some in the industry. It may be appropriate to take a ratio of around 12 per cent. On this basis, it may have generated a pretax profit of over €30 million in 2003. And that is before investment income it must have built up.

The filing also shows that BUPA Ireland has been exceptionally prudent by writing back large claims provision made in previous years.

Write-backs, of course, should be made. Some industry sources suggest an average of 10 per cent to 15 per cent. But in BUPA Ireland's case, it has been over 30 per cent in 2001 and 2002.

An interesting exercise would be to try to establish what extra benefits BUPA Ireland has had with its younger age profile.

If there was true community rating in existence, then both BUPA Ireland and VHI would have the same claims ratio. The average for 2003 works out at 77 per cent. On this basis, BUPA Ireland benefited to the tune of a €20 million boost to its cash flow in 2003. There was a similar pattern in previous years - that should give plenty of fodder to the advocates of risk equalisation.

BUPA Insurance has described risk equalisation as "inappropriate and unfair in a market which is dominated by a State-owned insurance" and BUPA Ireland's customers "should not have to subsidise it".

That statement sounds lame considering the unreported substantial cash flow being generated by the group. Is it any wonder that Vivas has entered the market as the third player? If risk equalisation is given the green light, which, in equity, it should, then Vivas won't have to make any contributions for three-and-a-half years.

BUPA Ireland can easily pay its contribution to risk equalisation. While the pickings will not be as rich with risk equalisation, there should still be sufficient incentive to remain here for the long haul.

BUPA Ireland is clearly in this market for the profits it generates, and it has gone to great lengths to hide the figures from its customers and others. Why not have a level playing field and publish its results like VHI?