NPI has come under fire for encouraging IFAs to sell with-profits bonds while it was being forced to cut policyholder payouts.
The pensions specialist wrote £295m worth of with profits business in 1998 despite having a free asset ratio of only 4 per cent.
NPI was forced to use a market value adjustment to reduce the face value of its with-profits units in a bid to claw back some of the money earmarked for with-profits policyholders.
The reduction, imposed on October 1 1998, is revealed in the life office's latest Treasury returns. It was closely followed by NPI's decision to put itself up for sale.
Market value adjusters are deterrents designed to stop policyholders surrendering policies early when the value of their investment dips due to market forces.
The MVA reduction was 3 per cent to units issued in the second half of 1997, 6 per cent to those issued during the first quarter of 1998 and 9 per cent to those issued in the second quarter of 1998.
In his report on life office financial strength entitled the "Wolf's at the Door", analyst Ned Cazalet says: "Such action seems quite remarkable in the context of the heavy promotion by NPI of its with profits bond offering during the period in question."
NPI corporate actuary Andrew Walton says: "The MVA was applied after the stock market took a tumble in October 1998 – the more business you write the more exposed you become in that situation.
"It was applied irrespective of financial strength, we were just following a consistent policy. You could say it was a matter of principle."