Buffett's UK insurer fined £1.2m

A UK firm owned by US billionaire Warren Buffett has been fined £1.2m by the Financial Services Authority (FSA) over two bogus reinsurance deals.

Wednesday, 22 November 2006, 13:40 GMT

The FSA said General Reinsurance's senior managers failed to make sure its underwriting, accounting and compliance systems were working properly.

The first reinsurance deal let a German insurance firm and its Irish subsidiary reduce their tax bills.

The second, with a UK motor insurer, recouped premiums lost on another deal.

The FSA said the contracts were improper because they had no legitimate commercial purpose.

"Both conventional and finite reinsurance transactions should only be used where there is a legitimate commercial purpose and sufficient risk transfer," said Margaret Cole, the FSA's director of enforcement.

"The FSA will take robust action against reinsurance firms and their staff who act in contravention of these basic principles," she warned.

Reinsurance

Reinsurers form a vital part of the world insurance industry.

They act as insurers to insurers, allowing them to lay off the risk of excessive claims coming in, often picking up large parts of the bill for natural disasters such as Hurricane Katrina.

General Re is one of the largest and is owned by the US Berkshire Hathaway group, run by the investor Warren Buffett and one of the world's richest men.

The first of the bogus contracts was struck in 1999 and was renewed three times until 2003.

The second deal took place in 2004.

The fines levied by the FSA would have been much higher, at £1.75m, had General Re not revealed the breach of regulations to the FSA itself.

It said, though, that the two improper contracts were not typical of the way the firm operated.

Source: http://news.bbc.co.uk/1/hi/business/6172662.stm