Gen Re fined UK£1.225 million over improper reinsurance transactions

Gen Re, one of the world’s largest reinsurers, lacked “sufficiently robust” systems and controls to prevent two illegal purported reinsurance transactions, one from 1999, which was renewed three times to 2003, and a second, post N2, occurred in 2003 and 2004. The first, circular set of transactions was designed to assist a German insurer - a longstanding client of Cologne Re, also part of Gen Re - and, specifically, its Irish subsidiary to gain tax advantages by reducing its connected third party business and increasing the proportion with independent third parties. A transfer of monies between Germany and the Irish subsidiary was effected through a clash cover retrocession contract under which the subsidiary indemnified Gen Re’s UK business against losses on accumulated retentions from internal retros held by its underwriting departments. In order to compensate for the retrocession agreement premium, Gen Re’s UK arm was offered inwards motor catastrophe cover by Cologne Re, a German firm in the Gen Re group. Both inward and outward cover were artificial; they were initiated either near the end or after expiry of the policy period, when the parties would have known that losses were unlikely which meant that there was no legitimate risk transfer.