GRE goes further than rivals with bonus axe

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The Independent Online
GUARDIAN Royal Exchange is going further than its life insurance rivals in cutting bonuses for investors and is paying no final bonus at all on its 10-year policies.

GRE, already languishing as one of the worst-paying life offices on its with-profits policies, has also lowered annual bonuses, cutting the total payout on a 10-year policy by 8.3 per cent.

Its payout on a pounds 30-a-month, 10- year policy drops by pounds 457 to pounds 5,022, giving a yield of 6.5 per cent. This compares with pounds 6,992 from Norwich Union or pounds 6,590 from General Accident.

The sum paid on a 25-year policy has been cut only marginally. A 29-year-old man with a pounds 30-a- month, 25-year policy will get pounds 44,062 when it matures this year - pounds 31 less than last year and a yield of 11.06 per cent.

But this compares with pounds 65,464 from General Accident, or pounds 58,237 from Norwich Union, which announced sharp cuts in its bonuses earlier this week.

GRE has 1 million policyholders, mostly with unit-linked plans. About 10 per cent of them bought their policies when taking out a mortgage with Nationwide Building Society, which is a tied agent of the group until the end of 1994. The society is considering whether it needs to write to some of its with-profits borrowers to warn them that they may need to check the progress of their policies.

GRE no longer sells conventional with-profits policies, but its unitised with-profits policies are buying into the same life fund, which has suffered poor performance for several years.

An actuary's assesment of the five years to 1991 concluded that the GRE fund was growing at 7.2 per cent compared with an industry average of 9.8 per cent.

Richard Wood, GRE's actuary and director of marketing, said: 'We needed to get to a situation where payouts mirrored asset performance.' GRE's life fund has 32 per cent in equities, 36 per cent in fixed-interest securities and 17 per cent in property. It also has 12 per cent in mortgages and loans.

The financial strength of GRE's life fund has been called into question. Standard & Poors, the credit-rating agency, recently described GRE as vulnerable. Mr Wood said: 'We have done a lot of work to improve the capital adequacy of the fund.'

NPI, another insurer classified as vulnerable by S&P, has also reduced with-profits payouts. The payout on 10-year policies comes down by 6.6 per cent, giving a yield of 12.8 per cent; the 25-year payout drops by 5.9 per cent to give a yield of 14.8 per cent.