Norwich Union cuts bonuses despite share price rally

Aviva, the largest insurer in the UK, said yesterday that it was slashing bonuses for most of its 3.3 million with-profit policyholders.

Despite making 11.5 per cent on its investments in 2003, Norwich Union, Aviva's brand in the UK, said it would cut back payments on the majority of with-profits policies for the fourth time in two years. Some bonuses have been scrapped entirely, while most payouts will be reduced by between 5 and 10 per cent.

The changes mean that the payout on a 25-year £50 a month endowment would be £59,444 following yesterday's announcement, compared with £63,819 if it had matured in July.

The final value of a 20-year £200 a month pension would be £120,978, down from £130,851 it would have fetched in July.

Longer-term investors have caught the poor years of negative returns, which are dragging down their payout values. "While we saw a positive return on the fund in 2003, over the previous three years we saw a cumulative return of minus 18.2 per cent and the changes we have made need to be set against this," said Mike Urmston, chief actuary at Norwich Union.

Some policyholders, however, have had bonus rates maintained at last year's levels.

New customers who took out a policy last year will get a 6.35 per cent award.

Peter Hales, sales director at Norwich Union, said this would show that new investors in with-profit funds can still enjoy good returns.

Norwich Union said the strength of its returns would be good news for endowment customers, 39 per cent of whom are facing shortfalls.

"The investment returns we have enjoyed this year are being passed on to everyone and shortfalls will be reduced," Mr Urmston said.

The company is also reducing exit penalties on customers who cash in early to an average of 8 per cent from 9 per cent.

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