Life insurance groups will be forced to make further cuts to bonus payments for the next two years, according to reports.

The Times newspaper suggests ongoing falls in the stock market will mean payment cuts in 2003 and 2004, as companies try to make up the difference between previous pay-outs and the sliding value of investments.

Abbey National has become the latest bank to suffer from the with-profits crisis, according to the Financial Times.

It suggests Abbey's Scottish Mutual life insurer will stop selling with-profits policies from 31 December and introduce a new style of investment in the new year.

Crisis deepens

With-profits life insurance policies were once seen as a safe way to save for retirement.

The policies involve investing up to 70% of contributions on the stock market, with profits made in good investment years saved to maintain pay-outs during more difficult times.

However, the sharp falls in stock market value this year has forced a number of companies to cut their bonus payments.

But The Times suggests life insurers are still paying out between 10% and 15% more than the value of the investments backing their policies.

This could mean bonus cuts long into 2004 to make up the earlier shortfalls.

Abbey quits

Abbey National has reportedly said it will now stop selling with-profits products.

The FT suggests the bank has already significantly reduced sales of its with-profits bonds supplied by Scottish Mutual and that it will cease sales completely by the end of the year.

Abbey National admitted last month that its profits for 2002 would be hit by a series of charges, including �500m costs arising from its life insurance arm.

The bank is expected to reported a substantial restructuring when it reports its profits in February 2003.