Norwich Union, one of the UK's biggest life assurers, has announced it will cut payouts on endowment, personal pensions and investment polices.

We are seeking to achieve the correct balance

Chief Actuary, Mike Urmston

It is the second time in two years that the life assurer has been forced by poor stock market performance to cut the value of policies in the middle of the year.

The assurer is slashing the terminal bonus rates on maturing with-profits policies, which will result in payouts reducing by around 5%.

In addition, Norwich Union is also cutting the annual bonus paid on certain policies by 0.5%.

The changes take effect on 1 August.

Stock market woes

The decision will mean that a final payout on a 25-year endowment policy with monthly premiums of �50, which matures in August, will fall from �89,787 to �85,518.

While the maturity value of a 10-year personal pension with contributions of �200 a month will drop to �33,744 from �35,100.

Normally, payouts on maturing policies are fixed in February for the rest of the year.

The decision to cut payouts is one of the clearest signs yet of the extent to which life assurers' funds have been depleted by falling stock markets.

Norwich Union said the cuts were a reflection of poor stock market performance over recent weeks.

In a statement, Norwich Union said: "The changes to bonus rates have been made due to the continuing adverse conditions in the UK stock market which has fallen by as much as 25 % this year."

With-profits

With-profits investments are "collective" savings products run by life insurers.

Investors' money is pooled together, and returns are paid in the form of bonuses, typically paid each year and then in the form of a terminal bonus when the policy matures.

In theory, investment returns are supposed to be guaranteed by a "smoothing" effect. In good years, insurers should hold back some money for years when investment returns are low.

But the recent woes of the stock market have exposed the fragility of these funds.

Prudent management

Chief Actuary, Mike Urmston, said: ""The change in regular bonus rates is part of the prudent management of the with-profits fund.

"We are seeking to achieve the correct balance between the proportion of the overall return that is paid in the form of bonuses guaranteed on maturity or retirement , and the non-guaranteed final bonus.