Norwich Union announces bonus cut

Norwich Union today declared its intention to reduce bonuses for most of its with-profits policyholders.

Payments on the majority of with-profits policies have been cut for the fourth time in two years, with some bonuses reduced to 0%.

Other life and pensions policyholders fared better, with rates held at their 2003 levels, while new customers who took out a policy last year were paid total bonuses equivalent to 6.35% on some products.

Despite improvements in stock market performance in recent times, Norwich Union said the nominal value of most people's policies was actually greater than their share of the fund, and that as a result, bonuses on maturing policies had to be reduced.

Mike Urmston, chief actuary at Norwich Union, said: "While we saw a positive return on the fund in 2003, over the previous three years we saw a cumulative return of minus 18.2% and the changes we have made need to be set against this. The FTSE-100 is still around 2,400 points below its peak level of 6,930 in December 1999. We are, however, cautiously optimistic about the stock market, where we have seen good growth over the last nine months from the FTSE-100 low point of 3,287 in March."

The impact of today's announcement varies widely across all the different products the group offers. But overall most people will see policy payouts reduced by between 5% and 10%, although the final bonus rate on some unitised policies will remain the same.

Someone who had paid ?50 a month into a CGNU 25 year mortgage endowment will see their final payout fall to ?59,444 following today's announcement, compared with ?63,819 if it had matured in July.

The final value of a Norwich Union pension, into which someone had paid ?200 a month for 20 years, will have reduced to ?120,978, down from ?130,851 in July.

Norwich Union also announced that it was reducing the market value reduction it charges people who cash in unitised with-profits policies early from an average of 9% of the policy's value to an average of 8%.

Last week AXA Sun Life said it was reducing the regular bonuses it paid on former AXA Equity & Law with-profits policies by a third.

But insurance giant Prudential ended 10 years of falling payouts by saying the annual bonus paid on its Prudence Bonds would be maintained at the previous year's level.