Norwich Union blames stock market falls for cuts

Britain's biggest insurance group has announced that it is to cut bonuses paid to more than 3 million with-profits customers.

The bonus rate on Norwich Union life insurance and investment products will be cut to 3.25% in 2003, from 3.75% last year.

In addition, the bonus paid to stakeholder pension holders is to fall to 3.5% from 4.25%.

Pension and offshore bond payouts are to be slashed from 4.75% to 4%.

Norwich Union, part of the giant Aviva group of insurers, cited stock market falls in 2002 as the reason for the cut.

With-profit funds invest heavily in shares and in 2002 the UK stock market fell by 24%.

More cuts

As a result, many life insurers have cut bonuses payouts to with-profit investors.

Prudential, Legal & General, Standard Life and Axa have all cut payouts in recent months.

In July, Norwich Union cut payouts on endowment, personal pensions and investment polices.

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.

According to Norwich Union chief actuary Mike Urmston, the latest round of cuts cut was a necessity.

"We have to ensure we maintain the right balance between what we pay out now to customers with maturing policies and the guaranteed values that are added to policies through annual bonus additions in future," Mr Urmston said.

In the City, Aviva stock closed 6p lower at 447.5p on Tuesday.