Nom de Plume writes:
Just to make sure I have understood correctly, it is not that the independent expert has made an error, but that he used a number you don’t agree with i.e. if you didn’t subtract the £3bn transitional relief you would then get the 41% number.
If that is the case, why not say you don’t agree with the idea of transitional relief rather than call it a serious error.
No, it’s an error. Transitional relief is another form of fake asset, just like Matching Adjustment. If you take away the £7bn odd Matching adjustment ‘benefit’ from Rothesay’s book, their available capital amounts to pretty much zero. Clearly you can’t say that to policyholders, or they would object in their thousands. So Rothesay assumed that they would get back some of the lost MA in the form of transitional relief, i.e. having lost one fake asset the PRA would give some of it back in the form of another fake asset.
I can see no reason why that would happen, and in any case, as I pointed out in the previous post, TMTP is even more fake than MA, because you have to pay it back over 10 years. As well as the value of the fake asset, you have to include the present value of a series of fake cashflows over the amortising period. Thus zero minus zero equals zero, by my arithmetic.