The reserve is the PV of the future payments we expect to make (ie the annuity payments) calculated on the reserving basis. For 100 premium, expenses are 5%. So on pricing basis where you need 11.39 to buy an annuity of £1 pa, £100 premium will buy an annuity of (100 - 5) / 11.39 = X The reserve we need to hold for that annuity is 12.85X, since on reserving basis we need 12.85 for every £1 annuity.