MR Brian Duncan, the chief executive of the VHI, has resigned from the company.

The announcement was made late yesterday evening after Mr Duncan and the board agreed a settlement package which cleared the way for his departure after serving two years of a five year contract.

He leaves after a board meeting on Thursday received a report, drawn up by a four-person subcommittee which was critical of him and called for the termination of his contract.

A VHI statement issued late yesterday evening said that Mr Duncan considered the report to be "unfair and imbalanced and prejudicial to his professional and business standing."

The statement continued that the chief executive felt that the events of recent months had seriously impaired his ability to serve the interests of the company, its customers and its staff.

His resignation formally comes into effect on October 18th, but he is unlikely to play any further active role in the management of the company.

The terms of the settlement package were not disclosed by agreement between the two sides.

Mr Duncan is expected to receive a lump sum as compensation for loss of office.

Negotiations between the two sides on settlement terms are understood to have only started in earnest late yesterday afternoon.

Immediately following Thursday's meeting, Mr Duncan had indicated that he would respond in full to the findings of the report before a second board meeting on October 2nd, which was due to consider its conclusions again.

Last night the VHI statement said that the report would not now be considered further by the board.

Both the board and Mr Duncan are believed to have wanted to avoid a long-drawn out battle over the sub-committee report. It is also believed that the majority of the board was likely to support the subcommittee report.

The report was drawn up by Mr Phil Flynn, the former ICTU chairman; Mr Paul Coulson, a businessman; Ms Suzanne Kelly, a tax adviser and barrister and Ms Claret O'Connor, a microbiologist.

The report is believed to have concluded that the management of the VHI was divided, that morale in the organisation was low and that achieving the kind of changes needed to face competition was increasingly difficult.

It also examined a major row that had broken out between Mr Duncan and the board over the role of a senior executive in the company.

The board had wanted to remove some responsibilities for developing new products from this executive, but Mr Duncan refused to carry out this instruction.

He had supported the proposals which the executive had brought to the board.

Conflict had also developed in the organisation over the relationship with health-care providers such as the private hospitals.

With BUPA due to launch its products on the Irish market before the end of the year, some of the board were understood to be concerned that disagreement among the management and the board was hindering necessary developments.

The VHI needs to launch new products to attract younger subscribers and is also under pressure to sort out its relationships with the private hospitals before BUPA launches.

Mr Duncan joined the VHI two years ago, having left Irish Life after spending most of this working life with the company. Irish Life accounts indicate that Mr Duncan received over £290,000 from Irish Life after departing from that company.

The VHI board must now turn its attention to appointing a new chief executive, just months before BUPA is to launch in Ireland.

The organisation has also come under strong criticism for regular increases in premium levels ahead of the rate of inflation.

Mr Duncan is the second chief executive of VHI to resign in recent years. In early 1994 the former chief executive, Mr Tom Ryan, resigned after disagreeing with chairman Mr Noel Hanlon on their respective roles. Mr Hanlon's current term as chairman of the board is completed next February.

Following Mr Ryan's departure a committee chaired by former Aer Lingus managing director Mr David Kennedy examined the roles of the chief executive and chairman within the organisation.

Mr Duncan was appointed after Mr Kennedy's report was completed, but tensions again broke out between the chairman, the chief executive and the board. The board now has 12 members, following seven new appointments last May.