The with-profits fund fell in value last year by 3 or 4 per cent. As a result of the cuts in annual and final bonuses, the return on 10-year policies is being reduced from 12.1 to 10.3 per cent, and the annual yield equivalent on 25-year policies drops from12.9 to 12.5 per cent.
Richard Harvey, actuary at the mutual insurer, said that, in an era of low inflation, "real returns are as good as they have ever been, and are attractive".
He said £600m worth of policies would be maturing in the coming year so returns had to come back in line with investment returns. "It would be irresponsible to over-smooth the returns at the expense of other policyholders." Homeowners repaying their mortgage with a Norwich Union with-profits policy do not have to worry at the moment about the returns being sufficient to cover the loan.
The cost of the bonus amounted to £680m, Mr Harvey said. In relation to this, the cost of compensation for mis-sold pensions and extra costs associated with the harsher disclosure regime were insignificant.
Norwich Union has revamped its pension policies ahead of the new rules and has put its salesmen on salaries rather than commission. Its health care division is now the third-largest behind Bupa and PPP, with 500,000 customers.
Norwich Union plans to develop medical cover and is investing in the long-term care market for the elderly. It will also sell a Virgin PEP next month via the telephone, and is developing its own telephone operation.Reuse content