I reviewed the MCT paper and the relevant old exam problems, and I couldn't tell for certain because there were no numerical examples for that part of the MCT calculation. I'm assuming you looked in the MCT paper also and did not find a conclusive answer. They say the growth charge is based on gross premiums, but they don't specifically define gross premiums, and you can't tell from the examples they provide whether assumed premium from intra-group pooling should be considered in the growth charge.
I then looked at all the past exam problems where they asked you to calculate operational risk:
2017.Fall Q20 (doesn't say anything about intra-group pooling)
2016.Fall Q18 (doesn't say anything about intra-group pooling)
2016.Spring Q19 (there is intra-group pooling, but the 20% threshold is not reached even if it's included, but note that in the examiner's report solution, gross premiums does seem to include the premium assumed from intra-group pooling)
2015.Fall Q18 (specifies no intra-group pooling)
2015.Spring Q23 (specifies no intra-group pooling)
(Note that all MCT exam problems prior to 2015.Spring were based on an old version of the MCT calculation and are no longer relevant.) The above solutions all mentioned the growth charge but since there was no premium data for intra-group pooling, it didn't matter whether intra-group premium was included.
The BattleActs practice template operates on the assumption that intra-group pooling is not included when calculating the growth charge. I did it like this because if you look at the operational risk formula in section 7.1 of the MCT paper, the term for the growth charge is in a separate set of parentheses from the intra-group pooling. (I know that's not a great reason.) The other reason I did it like this is that the growth charge is 2.50%, which is similar to the risk factors for direct/assumed/ceded premium for non-intra-group pooling (2.50%, 1.75%, 2.50%). The risk factors for intra-group pooling are only 0.75%. Still, that's not a definitive reason, but it's the best I could come up.
So, unless I missed something somewhere, you can't tell from the MCT paper whether assumed intra-group pooling premium is included in the calculations for the growth charge.
Just want to drop a note and let you know that the new version of source text does address this ambiguity in P77.
It says and I quote 'For the purpose of this section, assumed premium written arising from intra-group pooling arrangement (ie Paig) are excluded from gross premium' (for the calculation of premium growth charge above the 20% threshold).
Comments
Interesting question.
I reviewed the MCT paper and the relevant old exam problems, and I couldn't tell for certain because there were no numerical examples for that part of the MCT calculation. I'm assuming you looked in the MCT paper also and did not find a conclusive answer. They say the growth charge is based on gross premiums, but they don't specifically define gross premiums, and you can't tell from the examples they provide whether assumed premium from intra-group pooling should be considered in the growth charge.
I then looked at all the past exam problems where they asked you to calculate operational risk:
(Note that all MCT exam problems prior to 2015.Spring were based on an old version of the MCT calculation and are no longer relevant.) The above solutions all mentioned the growth charge but since there was no premium data for intra-group pooling, it didn't matter whether intra-group premium was included.
The BattleActs practice template operates on the assumption that intra-group pooling is not included when calculating the growth charge. I did it like this because if you look at the operational risk formula in section 7.1 of the MCT paper, the term for the growth charge is in a separate set of parentheses from the intra-group pooling. (I know that's not a great reason.) The other reason I did it like this is that the growth charge is 2.50%, which is similar to the risk factors for direct/assumed/ceded premium for non-intra-group pooling (2.50%, 1.75%, 2.50%). The risk factors for intra-group pooling are only 0.75%. Still, that's not a definitive reason, but it's the best I could come up.
So, unless I missed something somewhere, you can't tell from the MCT paper whether assumed intra-group pooling premium is included in the calculations for the growth charge.
Hi Graham,
Just want to drop a note and let you know that the new version of source text does address this ambiguity in P77.
It says and I quote 'For the purpose of this section, assumed premium written arising from intra-group pooling arrangement (ie Paig) are excluded from gross premium' (for the calculation of premium growth charge above the 20% threshold).
Looks like your hunch was right after all.
Great! Thanks for letting me know! I will make a note in the wiki about that.