Two former reinsurance brokers for Benfield Limited have agreed to a two-year ban from the industry for participation in an improper financial reinsurance deal, the UK's Financial Services Authority said in London.
The punishment FSA said was the result of their involvement with an inappropriate placement of a loss portfolio transfer agreement for Chiyoda Fire and Marine Insurance Company (Europe) Limited.
In a statement Friday, FSA said that Robert George Phillips and Isabel Rawlence agreed they would not involve themselves in "regulated activity" in the financial services industry after involving themselves in the design and placement of an alternative risk transfer agreement where "their conduct did not meet an appropriate standard."
The agreement was used by executives at Chiyoda to distort the company's financial position. The two Benfield executives were called "unwitting participants" in the scheme.
"The conduct of these individuals was inappropriate," said Margaret Cole, FSA director of enforcement, in a statement. "In addition they failed adequately to question the conduct of senior employees at their client.
"Financial reinsurance should only be used where there is a legitimate commercial purpose and proper disclosure," she added.
Ms. Cole said the FSA "considers that there were indications that part of the contract placed by the two brokers was not transparent and did not involve any transfer of risk. The FSA will not hesitate to take robust action against anybody that undermines confidence in the financial system."
Finite insurance deals involving American International Group and other carriers have been the subject of numerous investigations in the United States.
According to the FSA, a legitimate loss portfolio transfer contract included a supplemental payment of ?5 million ($8.7 million U.S.). Under the agreement, the reinsurer paid a third-party insurer for "what had effectively been a loan to CE's parent," according to FSA.
The FSA said both Mr. Phillips and Ms. Rawlence did not know the purpose of the payment. The supplemental payment was "not transparent and did not involve any transfer of risk despite being treated as premium," FSA added.
The FSA said it made no findings of misconduct on the part of the reinsurer or the third-party insurer. The FSA did not name the two, adding that neither is based in the U.K.
In February, 2004, the FSA banned Yoshiaki Yamazaki, Hiroshi Okazaki and Robert McKibbin from working in the industry. Kazuhide Oda, Toru Morota and David Titterington were banned from having any management authority in the industry. The FSA said Chiyoda group has since merged with another Japanese insurer. The incident itself dates back to the company's 1999 and 2000 financial results.
A spokesman for Benfield confirmed that both employees were no longer with the company. Mr. Phillips has retired and Ms. Rawlence has left the industry, he said. An FSA spokesman said Ms. Rawlence is on maternity leave and indicated she does not plan to return to Benfield.
The Benfield spokesman reiterated the FSA's statement that there is no investigation of Benfield in this matter. The firm had no additional comment.
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