Britain's financial services watchdog has fined a subsidiary of Warren Buffett's Berkshire Hathaway over £1.2 million, one of its heaviest-ever penalties, over improper reinsurance deals.
Two reinsurance transactions signed by General Reinsurance UK purported to transfer risk from two insurance companies to the reinsurer, but the Financial Services Authority said they "were designed without legitimate purpose and effect".
The first transaction, signed in 1999 and renewed three times, allowed a German insurer to gain tax benefits by transferring money between Germany and Ireland.
The second, signed in 2004, was used to compensate for a premium reduction on a reinsurance programme agreed with a UK-based insurer. "Both conventional and finite reinsurance transactions should only be used where there is a legitimate commercial purpose and sufficient risk transfer," Margaret Cole, director of enforcement at the FSA, said today.
In both cases, General Re UK - part of General Re, one of the world's largest reinsurers - did not have enough systems and controls in place to stop the deals being signed, the FSA said.
"The FSA will take robust action against reinsurance firms and their staff who act in contravention of these basic principles," Ms Cole said. The FSA said the financial penalty would have been higher but that General Re UK reported the transactions to the regulator, cooperated and took prompt action.
By settling at an early stage in proceedings, General Re also qualified for a discount, without which the fine would have been £1.75 million.
General Re's penalty comes far below record-breaking multi-million pound fines issued by the FSA against Shell and Citigroup in 2004 and 2005, but it is the second highest this year after Deutsche Bank's 6.3 million pound fine for market misconduct.
A General Re spokeswoman in Germany declined to comment on the fine.