The UK insurer Prudential has said it will cut bonus payments for up to two million policy holders because of falls in the stock market.

The cuts relate to with-profits policies, which are long terms funds that usually smooth out dips in the stock market over the length of the policy.

But the sustained falls of the last two years have forced a number of insurance groups to cut bonus payments for cashing in a policy.

Prudential had avoided any reduction in bonus rates until now, but said on Thursday that they could be cut by 5% to 10%.

The insurance giant's chief executive, Mark Wood, said: "This is a prudent move to protect the strong financial position of the fund".

The decision follows a 2.6% fall in the value of the with-profits funds during the first half of 2002.

Mr Wood said the value of the stock market has fallen by 40% in the last two years.

The reductions will come into effect from Thursday and follow cuts by rival insurers Norwich Union and Friends Provident in July.