The VHI says it is losing money on its health insurance business.

While the country's largest health insurer recorded a surplus after tax of €54.3 million last year, this included a once-off credit of €38.2 million relating to changes to its staff pension policy.

VHI said excluding this one-off item, the surplus would have been approximately €16.1 million. The private health insurance element of its business was loss-making, with an underwriting loss of €7.2 million recorded.

Premiums totalling €1.43 billion was recorded in 2012,an increase of almost 9% on 2011, against claims of €1.39 billion, an increase of 13% in claims.

VHI CEO John O’Dwyer said 2012 was a challenging year. A focus on cost containment delivered savings of over €100 million in 2012 and the insurer's investment performance was strong, marginally improving its financial position, he said.

"While we delivered a surplus, the core health insurance business continues to be loss making. This is due to the aging profile of our customer base and the lack of an effective risk equalisation scheme."

Under risk equalisation, insurers with older and more expensive subscribers are compensated by those who have fewer older subscribers.

The Government introduced new risk equalisation legislation earlier this year.