When the cost of guarantees are introduced, how does it increase prospective reserves? With asset share it's clear, but wouldn't recognising the guarantee cost just mean increasing PV outgo and so prospective reserve increases? Hope somebody would clarify. thanks.
The guarantee cost is already recognised in the reserve before action (a) is implemented. Action (a) is just the introduction of a charge for the cost of the guarantee. The prospective reserve calculation will include this charge as a negative liability, so reserve will reduce.
