Pru maintains bonus rates

Insurance giant Prudential today announced it would not be cutting bonuses on its long-term savings policies for at least a year.

The group said the bonus rates it announced for its with-profits funds at the beginning of this year would be maintained until the next full year bonus review in February 2004.

The move will be welcome news to beleaguered investors who saw bonuses on the policies reduced three times during 2002 due to falling stock markets, slashing the maturity value of policies by around 12%.

But Prudential, which now has only 45% of its with-profits fund invested in equities, said the fund was now strong enough for it to be confident bonuses could be maintained at their current level.

The group said its ?74bn with-profits fund had a free-asset ratio, which measures the level of assets the fund has after meeting its solvency requirements and liabilities, of 8.9% at the end of June, up from 8.4% at the end of December.

It added that the move had nothing to do with yesterday's announcement that it was slashing its dividend for the first time since 1914.

With-profits policies aim to smooth out stock market volatility, and are often taken out as pensions or endowments to pay off a mortgage.

Bonus rates on Prudential's with-profits pensions policies are currently 3.5% for annual bonuses and 5.5% for total bonuses which are paid when the policy matures.

Prudential also announced that bonuses paid on with-profits policies taken out since 2002 would be based solely on growth in the investment since then.

This means new customers will not suffer reduced returns as a result of poor stock market performances before they took out their policy.

Yesterday the group announced a 27% fall in operating profits to ?397m, while total insurance and investment sales remained little changed at ?15.52bn.