An application to the Minister for Health and Children, Mr Cowen, for a substantial increase in VHI fees is to be made shortly.

The company yesterday reported a 67 per cent growth in its operating surplus after its first full year of competition.

The size of the fees' increase which is to be sought is not known but is likely to be in the region of 8 to 12 per cent.

Fees increased by 9 per cent in September of last year, the same percentage increase recorded for hospital bed charges. This year hospital bed charges increased by 12 per cent, though there may be no direct correlation between the two figures.

Once the VHI applies for a price increase, the Minister has 21 days in which to respond. The VHI then informs members and gives at least four weeks notice before implementing the increase.

Financial results for the year to February 28th, 1998, show a surplus of £2.8 million compared to £1.6 million for the previous year. Membership grew by 1.8 per cent to 1.44 million.

The £2.8 million surplus represents a return of less than 1 per cent on the premium income of the board. "It is the strongly held view of the board and its advisers that this level of surplus is no longer adequate," said VHI chairman, Mr Derry Hussey.

"As the business of the board expands and premium income grows significantly, higher surpluses will be required even to maintain the present solvency ratios," he said.

With current reserves at £76 million and minimum solvency cover at 121 per cent, the VHI requires an injection of £60 million over the next three to four years to ensure its reserves meet commercial solvency requirements. A number of proposals had been made to the Department of Health and Children on this matter and discussions were continuing, Mr Hussey said.

It is understood the company does not expect the Exchequer to meet this requirement, though such a move would be welcome.

Mr Hussey said the company's performance in the past year "establishes unequivocally the capacity of VHI to operate effectively in the face of competition".

Almost 97p in every £1 collected in premiums was paid back to members in claims. The VHI has administration costs of 6 per cent, less than half the industry norm.

The cost of claims during the year rose to £294.3 million, due to ageing, increased volumes of claims, new and expensive medical technology, and advances in diagnosis and treatment.

A White Paper on private health insurance is to be published this autumn and is likely to contain proposals for the creation of a more independent VHI. Consensus exists within the industry on the need to detach the company from the control of the Minister for Health and Children, who is responsible for regulating the health care market as well as being in charge of key hospital services.

A report prepared by Price Waterhouse identified four options for the future of the company. These are: staying the same; becoming a mutual society; going into a strategic partnership; or being sold.

The company is engaged in ongoing discussions with companies interested in potential partnership arrangements. The purpose of the discussions is to assess the level of interest and the content of the discussions is being fed back to the Department.

The £60 million injection could form part of a partnership arrangement. The company is also interested in improving its finances through selling consultancy and management services abroad, in much the same way as the ESB and Telecom Eireann. At present, the VHI is precluded from selling such services.

The VHI feels that in order to compete successfully, it must comply with commercial solvency levels.