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Norwich Union lowers bonus rates and payouts

Norwich Union has announced new regular bonus rates and payouts for with-profits policies for 2003 which are lower than those in 2002.

The insurance giant says the decrease is a direct result of the continuing poor stock market environment.

The policy provider points out that even with reduced payouts, maturing policies are still providing competitive real returns, with a 25-year endowment returning 10.8% a year after tax (a real return of 6.8% a year) based on the CGNU Life with-profit fund.

The UK stock market declined by 24% which, combined with the falls in the previous two years, has resulted in the worst bear market for more than a quarter of a century.

However, during 2002 Norwich Union&#39s with-profit fund showed a slightly improved performance over 2001 (-8.6% in 2002 compared to -9.5% in 2001). This was due to the impact of higher returns from property and fixed interest.

Norwich Union chief actuary Mike Urmston says: “These new bonus rates and payouts demonstrate how with-profits policies continue to provide real returns despite poor investment conditions. In 2002 alone Norwich Union added around £1.5bn in bonuses to with-profits policies.

“We have to ensure we maintain the right balance between what we pay out now to customers with maturing policies and the guaranteed values that are added to policies through annual bonus additions in the future. Prudent action has to be taken in this difficult investment climate.”

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