The U.K.’s Financial Services Authority (FSA) has fined General Reinsurance UK Limited (GenRe UK) £1.225 million ($2.35 million) for arranging two improper reinsurance transactions. The FSA said that in doing so GenRe had breached its “Principle 2 by not conducting its business with due skill, care and diligence and FSA Principle 3 by not organizing and controlling its affairs responsibly and effectively.”
The announcement of the fines explained that “the first transaction was signed in 1999 and renewed three times until 2003. It enabled a German insurer to gain 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.
“In both these cases, the FSA found that GenRe UK did not have sufficient systems and controls in place to prevent these transactions from being signed. The underwriting, accounting and compliance functions in respect of these transactions were inadequate and the transactions were not fully assessed and monitored. GenRe UK’s senior management also failed to oversee the activity properly.”
Margaret Cole, the FSA’s Director of Enforcement commented: “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.”
The FSA also said that it has “accepted an undertaking from a former employee of GenRe UK not to apply for authorization to carry on controlled functions for a total period of two years and to undertake an FSA approved training and mentoring program. The individual accepts that, with the benefit of hindsight and a fuller knowledge of the circumstances, their conduct fell short of an acceptable standard.”
The regulatory agency did note, however, that the “financial penalty in this case would have been significantly higher had it not been for mitigating factors, including the fact that GenRe UK reported these transactions to the FSA, fully cooperated and undertook prompt and thorough remedial action. By agreeing to settle at an early stage of the investigation, GenRe UK also qualified for a 30 percent discount, without which the fine would have been £1.75 million [$3.35 million].”
Was this article valuable?
Here are more articles you may enjoy.