The week has got off to a terrible start for Britannic Assurance's customers, with the news that it was suspending its final dividend and it may not be able to pay an annual bonus. What does it mean?

So, what's happened?

On Monday morning Britannic Assurance issued a profits warning, and unveiled a series of measures aimed at shoring up its finances.

This "further prudent precautionary action," the insurer said, had been caused by the worst year of annual stock market performance for almost 30 years.

The measures, however, did not placate the City.

By mid-morning the company's share value had halved and analyst Merrill Lynch downgraded the company's rating.

What does it mean for policyholders?

Monday morning's announcement was bad news for almost one million policyholders of the life insurer.

In the current stock market climate, Britannic can not currently afford to pay an annual bonus to its policyholders and may have to defer payment.

A spokesman for the insurer said it had taken the decision because it wanted to retain as much capital as possible in the fund.

All customers should have received an "interim" annual bonus for the year 2002 of about 3.5%, the spokesman said.

But Monday's announcement means policyholders are unlikely to receive any additional bonus for the year 2002.

Policyholders will not know until the end of the year whether it will be increased.

The assurer said there was no immediate impact on payouts to final bonuses - paid when a policy matures - because it had made big cuts to these rates in 2002.

However, it could not rule out further cuts, in the present stock market climate.

What does it mean for shareholders?

Shareholders may not now receive a dividend payout until this time next year.

Britannic said it was confident that the company's solvency could be maintained even if markets fell "appreciably lower" than today's levels.

However, if markets did fall significantly, this could delay the "resumption" of dividends to shareholders.

Is Britannic the only insurer suffering?

Britannic's problems are not new.

The company has cut more than 2000 jobs in the past two years, and its profits fell 35% in the first half of 2002.

The insurance industry as a whole is receiving a battering.

The big three listed UK insurers: Prudential, Aviva, and L&G lost about �20bn in 2002, according to research by Accenture.

Insurers that have had big exposures on the stock market have been hit hardest.

Britannic has reduced its proportion of equities to 42% from 72% in early 2001.

Most UK insurers are facing tough decisions: Cut costs or risk long-term stability.

A raft of companies have already wielded axes to their policyholders' bonuses throughout 2000, imposed severe exit penalties to prevent people leaving, and cut thousands of jobs.

But, unfortunately for policyholders and shareholders, the outlook for the UK's insurance industry in 2003 is further stormy weather ahead.