It's being calculated as (annuity amount) x (annuity factor on reserving basis). Annuity amount = (premium - initial commission/expenses) / (annuity factor on pricing basis). PS Just in case anyone's trying to find this question in the 2019 materials, it's on Chapter 3 page 9.
Happy New Year It's an equation of value : PV (premium) = PV ( benefits) + PV (expenses) In this case : 100 = Annuity amount X (annuity factor on pricing basis) + 5 Of course, in reality, this would happen at policy outset, and the annuity amount would be known (and a data item on the admin system) when actually reserving. The point of the example though is to illustrate that the difference between pricing and reserving bases can give rise to a capital requirement for annuities. Hope this helps Lynn
