CGNU to reduce bonuses for with-profits by as much as 30%

CGNU, the UK's largest insurer, is to become the latest company to slash bonus rates on pensions and investments following the fall in stock market returns last year.

The company, which operates under the Norwich Union brand, will announce bonus rates for its £50bn with-profit fund a week today. It currently pays an annual rate of 6.25 per cent on unitised with-profits pension policies and 5.25 per cent on products such as with-profits bonds.

The insurer, headed by chief executive Richard Harvey, would not say what bonus its 3.5 million with-profits customers would receive for 2002, but brokers expect it to follow rivals that have recently reduced bonuses by as much as 30 per cent.

Scottish Widows said this week it was cutting annual bonuses on pensions by a fifth to 4 per cent and certain savings investments will fall by 33 per cent to 3 per cent. Earlier, Eagle Star, which is part of Zurich Financial Services Group, said annual bonuses on unitised with-profit policies would fall from 3 per cent to 2.5 per cent.

Craig Wetton, the chief executive of Chartwell Investment Management, said: "I expect most companies will follow Scottish Widows by cutting to between 4 per cent and 4.5 per cent this year. I imagine Norwich Union's total return – including the annual and terminal bonus – will be just over 6 per cent."

With-profits contracts are meant to offer a buffer in times of poor investment returns because they keep back some of the growth achieved in good years in order to make up in part for bad years.

But, like all investments in the stock market, they have been hit by the 16 per cent fall in the FTSE 100 last year and financial advisers expect most companies will have little choice but to pass some of last year's losses on to customers.

Clive Scott-Hopkins, the director of the independent financial advisers Towry Law, said: "After two consecutive years of negative returns we are going to see cuts to bonuses in the next couple of months."

Many insurers have been reducing bonuses by about 50 basis points a year for the past couple of years. But the expectation is that even companies which have so far resisted cutting bonuses, such as Standard Life and Prudential, may be forced to reduce payouts.