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Daily Insurance Industry News
Tuesday 21st of May 2019
January 19, 2009

Norwich Union cuts with-profits bonuses

by Gill Montia

Story link: Norwich Union cuts with-profits bonuses

Norwich Union cuts with-profits bonuses

Aviva-owned Norwich Union (NU) has cut bonuses on its with-profits policies.

Effective 1st January, 2.3 million policyholders will receive payouts worth up to 15% less than a year earlier.

As a result, a 25-year Norwich Union endowment mortgage costing £50 per months is worth £42,322, compared to £45,911 at the beginning of 2008.

In the case of a pension with £200 per month invested over 15 years, the payout from 1st January 2009 is £53,708 compared to £59,691.

Investors who want to withdraw their cash early will see a slight improvement in the penalties they are obliged to pay as the insurer has adjusted its market value reductions down from an average 16.2% to 11%.

Earlier this month Friends Provident cut bonus rates on its with-profits policies by up to 20%.

Both insurers have attributed the move a weak investment performance; NU and Friends’ with profits-funds lost around 12% and 10.5% respectively, during 2008.

Insurance companies operate a system of “smoothing” whereby falling investment values in one year can be boosted by returns from better years.

However, this can not realistically protect policyholders in a year when returns have been ravaged by plummeting values of shares, bonds and property.

 

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