The UK's Financial Services Authority has fined General Re UK, a subsidiary of Warren Buffett's Berkshire Hathaway group, more than £1.2 million (€1.78 million) for arranging two improper reinsurance contracts. It is one of the largest fines the FSA has levied against an insurer.
The regulator said the first Gen Re transaction in the country, signed in 1999 and renewed three times until 2003, enabled an unnamed German insurer to gain tax benefits by transferring money between Germany and Ireland, where it had a subsidiary. A second deal, in 2004, had been used to compensate for premium reduction on a reinsurance programme agreed with a client insurer.
In both cases, the FSA found that Gen Re UK did not have systems and controls to prevent these contracts from being signed and senior management had failed to oversee them properly.
The fine would have been 30 per cent higher - £1.75 million - but for the fact that Gen Re had reported the transactions, co-operated with the regulator and undertaken prompt and thorough remedial action, the FSA said. Gen Re had also agreed to settle at an early stage.
Margaret Cole, the FSA's director of enforcement, said: "The FSA expects firms involved in reinsurance business to observe proper standards of conduct, act with due skill, care and diligence, and to ensure that they and their staff structure and manage transactions appropriately.
"Both conventional and finite reinsurance 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." There was no immediate comment from Gen Re.
