BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
 You are in: Business  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
E-Commerce
Economy
Market Data
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
Tuesday, 23 July, 2002, 10:55 GMT 11:55 UK
Life assurer cuts endowment payouts
Norwich Union
Second cut in two years by Norwich Union
Norwich Union, one of the UK's biggest life assurers, has announced it will cut payouts on endowment, personal pensions and investment polices.


We are seeking to achieve the correct balance

Chief Actuary, Mike Urmston

It is the second time in two years that the life assurer has been forced by poor stock market performance to cut the value of policies in the middle of the year.

The assurer is slashing the terminal bonus rates on maturing with-profits policies, which will result in payouts reducing by around 5%.

In addition, Norwich Union is also cutting the annual bonus paid on certain policies by 0.5%.

The changes take effect on 1 August.

Stock market woes

The decision will mean that a final payout on a 25-year endowment policy with monthly premiums of 50, which matures in August, will fall from 89,787 to 85,518.

While the maturity value of a 10-year personal pension with contributions of 200 a month will drop to 33,744 from 35,100.

Normally, payouts on maturing policies are fixed in February for the rest of the year.

The decision to cut payouts is one of the clearest signs yet of the extent to which life assurers' funds have been depleted by falling stock markets.

Norwich Union said the cuts were a reflection of poor stock market performance over recent weeks.

In a statement, Norwich Union said: "The changes to bonus rates have been made due to the continuing adverse conditions in the UK stock market which has fallen by as much as 25 % this year."

With-profits

With-profits investments are "collective" savings products run by life insurers.

Investors' money is pooled together, and returns are paid in the form of bonuses, typically paid each year and then in the form of a terminal bonus when the policy matures.

In theory, investment returns are supposed to be guaranteed by a "smoothing" effect. In good years, insurers should hold back some money for years when investment returns are low.

But the recent woes of the stock market have exposed the fragility of these funds.

Prudent management

Chief Actuary, Mike Urmston, said: ""The change in regular bonus rates is part of the prudent management of the with-profits fund.

"We are seeking to achieve the correct balance between the proportion of the overall return that is paid in the form of bonuses guaranteed on maturity or retirement , and the non-guaranteed final bonus.

See also:

16 Jan 02 | Business
03 Jul 02 | Business
15 Jun 02 | Moneybox
28 May 02 | Business
13 May 02 | Business
13 May 02 | Business
Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes