Insurance tycoon Seán Quinn secured a "radical" cut in the price he will pay for health insurer Bupa Ireland after the Government closed off the loophole that would have enabled him to avoid making risk equalisation payments to VHI. Arthur Beesley, Senior Business Correspondent, reports.
The introduction of emergency legislation on Wednesday night led to an immediate renegotiation of the price to be paid for Bupa, before Mr Quinn moved on Thursday to make public his intention to proceed with the deal. The original deal put a valuation of some €150 million on Bupa but only on condition that there was no loss of subscribers or damage to its brand following its threat to leave the Irish market and its decision not to renew subscriptions.
The closure of the loophole cut Bupa's valuation by "tens of millions" of euro when a new price was agreed on Thursday, it is understood. The final price has not been made public as neither the Quinn Group nor Bupa commented on the new sale contract.
However, corporate financiers believe the price reduction was significant. "I would say intuitively that the price could be halved," said one senior figure.
While Mr Quinn made a point of criticising the Government's intervention as "unhelpful and unnecessary", the development means he will acquire Bupa's insurance contracts with 475,000 customers for considerably less than first agreed.
In addition, there is still a possibility the risk equalisation scheme will be reformed to the advantage of VHI's rivals following a Government review.
The new price reflects the fact that the Quinn Group's profit margin from the Bupa business will be reduced due to its immediate obligation to make payments to compensate the VHI for the higher age profile of its customers.
Risk equalisation involves health insurers with a higher proportion of high-risk subscribers receiving compensation payments from companies with a lower-risk subscriber base. As a result, Bupa would have had to pay millions of euro to the VHI every year.
However, the Quinn Group expected to be treated as a new entrant to the market, and to qualify for the three-year exemption from risk equalisation payments which until now has been granted to new entrants.
The emergency legislation of this week abolishes this three-year exemption for new entrants.
The Government intervention considerably weakened Bupa's hand in the renegotiation of the price because it was open to the Quinn Group to walk away from the deal.
Bupa would have had no option but to seek an alternative buyer in that scenario and such a buyer would have been able to drive down the price due to the closure of the loophole. The danger that thousands of Bupa customers would leave the insurer if the Quinn deal failed further weakened its position.
In a statement yesterday, Bupa said its Fermoy office had "one of its busiest days" from people seeking to transfer from the VHI following confirmation that the Quinn deal stands.