39.—(1) Subject to paragraphs (2), (3) and (4) below, the amount of the long term liabilities shall be determined separately for each contract by a prospective calculation.
(2) A retrospective calculation may be applied to determine the liabilities where a prospective method cannot be applied to a particular type of contract or benefit, or where it can be demonstrated that the resulting amount of liabilities would be no lower than would be required by a prudent prospective calculation.
(3) Appropriate approximations or generalisations may be made where they are likely to provide the same, or a higher, result than individual calculations of the same amount of the liabilities in respect of each contract.
(4) Where necessary, additional amounts shall be set aside on an aggregated basis for general risks which are not individualised.
(5) The method of calculation of the amount of the liabilities and the assumptions used shall not be subject to discontinuities from year to year arising from arbitrary changes and shall be such as to recognise the distribution of profits in an appropriate way over the duration of each policy.
(6) The liabilities for contracts under which the policyholder is eligible to participate in any established surplus shall have regard to the level of the premiums under the contracts, to the assets held in respect of those liabilities, and to the custom and practice of the society in the manner and timing of the distribution of profits or the granting of discretionary additions, as the case may be.
(7) In this regulation “established surplus” means an excess of assets representing the whole or a particular part of the fund or funds maintained by the society in respect of its long term business over the liabilities, or a particular part of the liabilities, of the society attributable to that business as shown by an investigation to which section 46 or 47 of the 1992 Act applies.