LONDON (Bloomberg) —General Reinsurance UK, a unit of Warren Buffett’s Berkshire Hathaway Inc., was fined $1.2 million ($2.3 million) by the Financial Services Authority over two transactions that broke U.K. market regulations.The unit, based in London, approved two “illegitimate” reinsurance transactions, the FSA, the UK’s market regulator, said in a statement today. One was designed to help a German insurer shift money to Ireland for tax advantages, the other was intended to compensate General Re for a rebate it gave to a UK client, the FSA said.

The transactions reviewed by the FSA involved finite reinsurance contracts, which can be used to manipulate financial results. This month the German Federal Financial Authority, known as BaFin, asked General Re to provide more information about similar contracts.

“Both conventional and finite reinsurance transactions should only be used where there is a legitimate commercial purpose and sufficient risk transfer,” Margaret Cole, the FSA’s director of enforcement, said in the statement. “The FSA will take robust action against reinsurance firms and their staff who act in contravention of these basic principles.”

Proper underwriting, accounting and compliance checks should have uncovered the transactions, the agency said. The contracts also weren’t properly supervised by General Re senior management.

The fine was reduced 30 percent from $1.75 million to $1.2 million because the insurer cooperated with the investigation and settled the dispute quickly. General Re told the FSA about the breaches and disciplined the employees involved, the agency said.

Joanne Merrick, UK general counsel at General Re, was unavailable to comment, and Sabine Denne, spokeswoman at General Re’s German unit, Cologne Re, declined to comment.

The transaction with the German insurer was signed in 1999 and renewed three times, the FSA said.

General Re’s German subsidiary Cologne Re reinsured parts of an unidentified German insurer’s business via so-called financial reinsurance “to derive a tax advantage,” the FSA said. The primary purpose of those transactions “was to facilitate the movement of monies in order to obtain tax advantages for the Irish subsidiary, and as such the transactions were motivated by an illegitimate purpose,” the FSA said.

Financial reinsurance contracts or so-called finite reinsurance policies are a non-traditional type of reinsurance that plays on the boundary between finance and insurance and can be abused to smooth an insurer’s earnings.

The second transaction was signed with a UK client in 2004. Neither client was identified by the FSA. Regulators in Germany and Ireland have been informed.