Consolidating a PCC

[xuerebx]

I've got an interesting situation on hand. Client of mine insures its Customers (who sell products and require insurance) by entering into an insurance agreement with an Insurer, who in-turn reinsures the risk in the Insurer's own Protected Cell Company (PCC). As you may know, the PCC is actually part of an entity made up of a core and a number of different cells - only one of these cells pertains to my Client. For some reason, past management of the Client decided to consolidate this specific cell (nevermind that most probably the Core and all of the cells of the PCC is being consolidated by the Insurer in its consolidated financial statements).

My question is - both if you had to look at it from an IFRS 10 silo vs entity perspective (let's say the conclusion is that the specific Cell in question can be a silo), the power over relevant activities criterion would most probably fail seeing as to how the Insurer would have set out the framework and conditions related to the insurance activities (the guarantee limits would require consent from the Insurer to amend/change, and if a Customer is deemed too risky the Insurer can decide not to insure him). Furthermore, my Client just gets a margin on the premiums remitted to the PCC.

Anyone met similar circumstances? I just can't see the rationale of my Client consolidating the specific Cell. I'm positive it is the Insurer who consolidates said Cell (and all other cells within the PCC I'd bet).

Thanks!

[Marek Muc]

I think this is quite a specific scenario and it might demand more in-depth exploration than a forum post can offer...

[xuerebx]

Undoubtedly - in fact we're going to delve deep into the matter. Just wanted to see if anyone met a similar situation in practice i.e. whether a sole policyholder would have control over the cell of another entity's PCC. Usually the control assessment is done by the entity owning the PCC, not by the policyholder.

[xuerebx]

Just an update in case anyone finds this when running a search - the conclusion was not to consolidate the PCC as control could not be demonstrated. The Insurer is the legal owner of the PCC, and also the one who controls it in terms of IFRS 10. Many of the activities were pre-defined on the onset of the PCC, and once outside the stipulated ranges on a number of different areas, my Client would require the approval of the Insurer i.e. the Insurer always has the final say, except for those activities falling within the stipulated ranges.

[Marek Muc]

Thanks for this follow-up, xuerebx!