The Financial Services Authority (FSA) has fined General Reinsurance UK Limited £1.225 million for arranging two improper reinsurance transactions. The ruling stated that GenRe UK breached FSA Principle 2 by not conducting its business with due skill, care and diligence and FSA Principle 3 by not organising and controlling its affairs responsibly and effectively.

This 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 programme 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, 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.”