On page 18 of the ASET solution it mentions "The free assets are low so this gives the company very little scope for covering investment guarantees" Is it because all assets are invested in equities which are a poor match for reversionary bonuses and there is not enough free assets to invest in bonds to meet the guarantee?
Pretty much - the equities are a poor match for the guaranteed, reversionary bonuses. With limited free assets the company won't have the assets to afford the guarantees should they bite or to invest to hedge the guarantees (eg by using derivatives).
