Scottish Widows is the latest insurer to cut bonuses

The Lloyds TSB-owned firm said it was cutting bonus rates by between 0.5% and 1% on some of its policies.

New products - the Flexible Options Bond Growth and Income Fund - will fare better, with their rates increasing.

Insurers are in the midst of their bonus declaration seasons, when policyholders find out how their investments are progressing.

Industry woes

Last week, Norwich Union announced cuts by up to 10% on most of its annual bonuses and Axa Sun Life has also announced cuts to its annual bonuses.

Stock markets still have a long way to go before they get back to previous levels Adrian Eastwood, actuarial director of Scottish Widows

Prudential has so far bucked the trend, by not reducing its payouts for its 375,000 Prubond customers.

However, most Prudential customers must wait until the end of February before they find out how their with-profits investments are progressing.

With-profits policies are designed to smooth out the peaks and troughs of stock market volatility.

Profits made in good years are kept in reserve to pay investors an annual bonus even when the stock market performs badly.

Stock rebound

Slumping share prices throughout 2001 and 2002 forced most firms to trim bonus rates on their policies.

Policy values are still suffering despite the stock market recovering over the last ten months.

Adrian Eastwood, actuarial director of Scottish Widows, said: "A partial recovery in stock markets over the last 12 months has enabled Scottish Widows to increase bonus rates on the Flexible Options Bond Growth Fund.

"However, stock markets still have a long way to go before they get back to previous levels. As a result, further reductions in regular bonus rates are necessary for those types of policy that have experienced the effects of sustained falls in asset values."