PPP Healthcare, the UK health insurance provider, has informed subscribers in the Republic it is withdrawing from the market for business and regulatory reasons.

The company's subscribers in the Republic have international policies which provide them with cover for treatment in qualifying hospitals around the world, including most or all hospitals in the Republic. The price of PPP's insurance products is age-related, which is contrary to the "community rating" system which operates in the State.

A spokeswoman for the company told The Irish Times she agreed it should not be selling its products in this State in the first place, as they do not comply with the law governing health insurance.

She also accepted that PPP Healthcare is not registered with the Department of Health as a health insurance provider for the Republic, as required since 1994.

The spokeswoman said it was primarily because it is "not in a position to comply" with the law governing the sale of health insurance, that it has decided to withdraw from the market in the Republic.

She said another factor in the decision to withdraw was that it was conscious its customers were not complying with the law when they purchased health insurance from PPP.

When it was put to her that the company was knowingly operating contrary to the regulations here for a number of years, she said that was "fair comment". However, the position in relation to health insurance had "tightened over the last few years" and it took time for the company to put in place its plans for withdrawing from the market, she said.

In its letter to members in the Republic, PPP informs them it has "recently carried out a business and regulatory review of the Irish market and we have regretfully concluded that we are unable to continue to provide healthcare insurance to policyholders in Ireland."

Subscribers are advised that a special arrangement has been put in place with the VHI which will allow them transfer to one of its healthcare plans and maintain cover for all medical conditions covered by their PPP subscription.

Persons who choose not to transfer to the VHI are advised that their policies will lapse at their next renewal date, or three months after receipt of the June letter, whichever is the later. PPP Healthcare has been mentioned in the past as a possible future partner for the VHI in the Republic.

The PPP spokeswoman would not say how many subscribers the company has in the Republic but it is understood to be a number of thousand.

The PPP decision comes as a long-awaited White Paper on the health insurance market is due to be published shortly, possibly before the end of the month. There has been intense speculation that the paper will recommend the reintroduction of a risk equalisation scheme, whereby companies with lower claims rates have to pay specified amounts to competitors which have higher rates.

Market sources believe the introduction of such a scheme could lead to BUPA Ireland being asked to pay as much as £20 million to its competitor, VHI. Any such development is likely to be vigorously contested by BUPA.