Norwich Union cuts payments as markets slump

Norwich Union, Britain's biggest life insurer, is cutting up to five per cent from the value of maturing with-profits policies. It is the latest insurance and pensions group to bow to falling share prices by cutting payments to policyholders.

Most Norwich Union policyholders will not notice the cut because it will be implemented by reducing the terminal bonus. Annual bonuses are unaffected, but they were cut by 0.5 per cent earlier this year.

A spokesman said: "We have responded to the lower levels of the stock market after a major fall in equities without any major sign of recovery this year." He added that it was necessary to "rebalance" bonuses in view of the fact that share prices seemed set to remain low for some time.

Norwich Union will pay 100 per cent of what has been earned for policyholders over the long term, but in the short term payments can be anywhere between 90 per cent and 110 per cent.

The spokesman explained: "With the drop in the stock market, we have gone outside that corridor in recent months, which meant that we were paying more than 110 per cent."

He added that a 25-year endowment policy would still return 12 per cent a year.

Abbey National, and it subsidiary, Scottish Mutual, along with Eagle Star, Liverpool Victoria, Prudential and Scottish Equitable also cut their annual bonuses this year.