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LONDONThe Financial Services Authority has fined General Reinsurance U.K. Ltd. £1.2 million ($2.3 million) for arranging two improper reinsurance transactions.
The FSA, the United Kingdom's insurance regulator, said that Gen Re U.K., a unit of General Reinsurance Corp.itself a subsidiary of Berkshire Hathaway Inc.breached FSA's principles in arranging two transactions.
The first transaction was signed in 1999 and renewed three times until 2003, according to the FSA.
That deal enabled a German insurer to gain tax benefits by transferring money between Germany and Ireland, where it had a subsidiary, the FSA said in a statement. The second transaction, which was signed in 2004, was used to compensate Gen Re for a premium reduction on a reinsurance program with an insurer client, the FSA said.
The FSA found that in both cases, the transactions did not contain sufficient risk transfer to be classified as reinsurance and that Gen Re did not have adequate controls to prevent the improper transactions being signed.
"The underwriting, accounting and compliance functions in respect of these transactions were inadequate and the transactions were not fully assessed and monitored," the FSA said in its statement.
"Both conventional and finite transactions should only be used where there is a legitimate commercial purpose and sufficient risk transfer. The FSA will take robust action against reinsurance firms and their staff who act in contravention of these basic principles," Margaret Cole, director of enforcement at the FSA, said in the statement.
The FSA also noted that it has accepted a pledge from a former employee of Gen Re U.K. not to apply for authorization to carry on controlled functions for two years and to undergo an FSA-approved training and mentoring program.
The FSA added that, by agreeing to settle at an early stage of the investigation, Gen Re was given a 30% discount on the fine levied against it.