The move follows mounting problems at the company, which reported on Tuesday a 41% fall in profits - and is another blow to its one million with-profits customers.

Britannic also said it was cutting its dividend payment for 2002 and confirmed it was deferring annual bonus payments for policyholders.

Britannic's shares closed up 22p at 160p, however, as analysts had expected even more downbeat results.

Britannia pull-out

The insurer also said it would cut 150 jobs in an effort to save cash.

The Britannia Building Society, which has a distribution deal with Britannic, said it would immediately stop selling all life products supplied by Britannic Assurance.

You only cut bonuses and dividends when you've got your back to the wall Roman Cizdyn, Commerzbank

Britannic said it would now concentrate on its Britannic Retirement Solutions, and Britannic Asset Management divisions.

In a statement, the insurer said it was "no longer investing in new business capability at Britannic Assurance" and was therefore gradually withdrawing from "writing new policies".

The decision to close the with-profits fund means there will be little new money coming into the fund, and it will be harder for the fund's managers to take advantage of investment opportunities in the future.

Millions of UK householders pay into with-profits policies via endowments, and many others save through with-profits pensions.

With-profits policies smoothe out fluctuations in the stock market by spreading returns across the duration of the policy.

But the sector has been hammered by ongoing steep stock markets falls which have squeezed the value of investments and forced insurers to cut pay-outs.

Solvency levels

Britannic's managing director Bryan Portman said the firm would consider joining other insurers in seeking a waiver from the financial regulator over solvency levels.

Standard Life, Aviva and Legal & General have all said they are considering applying for a waiver after the Financial Services Authority (FSA) said it would consider exemptions, should financial markets worsen.

Britannic, which called off merger talks last year, reported profits of �86m for the year to December 2002, down from �145m in 2001.

But the results were ahead of analysts' expectations.

"The bears had said the Britannic was going bust, and this is far from the case," said one analyst.

The company's share price lost half its value in January when it warned that it would defer bonuses and cut dividend payments to shareholders, blaming the worst annual stock market performance in almost 30 years.

"You only cut bonuses and dividends when you've got your back to the wall," said Roman Cizdyn, an analyst at Commerzbank.