The UK Financial Services Authority has fined the reinsurance firm General Reinsurance UK GBP1,225,000 for arranging two inadequate reinsurance transactions.
The transactions breached two of the Financial Services Authority’s (FSA)principles. One breach was for not conducting its business with due skill, care and diligence and the second as for not organizing and controlling its affairs responsibly and effectively.
Signed in 1999, the first transaction was renewed three times until 2003, enabling a German insurer to obtain tax benefits by transferring money between Germany and Ireland where the German insurer had a subsidiary. The second transaction was signed in 2004 and was used to compensate for premium reduction on a reinsurance program agreed with a client insurer by GenRe UK.
The UK regulatory body found that the reinsurance group, which is owned by Berkshire Hathaway CEO Warren Buffett, did not have sufficient systems and controls to prevent these transactions from being signed. Furthermore, the underwriting, accounting and compliance functions of these transactions were discovered to be inadequate, with its senior management failing to oversee the activity properly.
Initially, the financial penalty had been GBP1.75 million, but this was greatly reduced after the regulating body considered mitigating factors, including the fact that GenRe UK reported these transactions to the FSA, fully cooperated and undertook prompt and thorough remedial action. The reinsurance firm also qualified for a 30% discount by agreeing to settle at an early stage of the investigation.