Norwich Union cuts its bonus payouts
Norwich Union yesterday became the latest insurer to hit its with-profits policyholders with another round of swingeing bonus cuts, slashing average payouts on its funds by thousands of pounds.
Norwich Union yesterday became the latest insurer to hit its with-profits policyholders with another round of swingeing bonus cuts, slashing average payouts on its funds by thousands of pounds.
The majority of with-profits policyholders saw bonus rates cut by between 0.5 and 1 percentage point. Investors in many of the group's oldest conventional policies will now receive a bonus rate of less than 1 per cent for 2004.
The group said policyholders paying £50 a month into its CGNU mortgage endowment policy could expect to receive £52,576, a reduction of about £7,000 on similar policies that matured a year ago. However, this equates to an annual return of 8.9 per cent a year, better than most other asset classes over a similar period.
In spite of the cuts, NU said it would still pay out bonuses totalling more than £1bn for 2004, likely to be among the highest amount paid by UK insurers.
Mike Urmston, NU's chief actuary, said: "Our with-profits funds have seen a second year of positive investment returns, which has resulted in an increase in the underlying value of customers' policies. Policies maturing continue to pay competitive returns and compare well to other forms of investments."
With bonus cuts commonplace each year, after most insurers failed to make adequate reserves in the 1990s bull market, financial advisers were upbeat about NU's announcement. Tom McPhail, the head of pensions research for Hargreaves Lansdown, said: "Whilst some of these figures look a bit ugly, when all the dust has settled, I think NU will be seen to have come out of this year's bonus announcements better than some of its competition."
Unlike Standard Life, NU said it would remain committed to its "mortgage endowment promise", which pledges to help mortgage endowment policyholders whose policies were in shortfall in 2000.
Mr Urmston said: "We are also taking this opportunity to restate our commitment to support customers through our mortgage endowment promise where we have set aside £1bn to support this promise. We believe this valuable promise is sustainable under today's market conditions, given the strength of our with-profits funds."
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