Royal & Sun Alliance has revealed it called on contingent loans from its general insurance parent last year and in January to maintain regulatory solvency and admits some of its with-profits policies are not keeping pace with inflation.
In its annual bonus declaration, the company slashed payouts on with-profits by up to 22 per cent. All contracts with terms of under 10 years and some 10-year pension contracts will have no terminal bonus because they have built-in guarantees.
The company also says it has limited ability to smooth. The latest cuts follow two interim declarations last year which reduced bonuses.
A £50 a month endowment with the Sun Alliance and London Assurance Company fund will now pay out £55,165 compared with £70,714 last year. A £50-a-month endowment policy in the stronger R&SA Life & Pensions fund will pay £66,262, down from £82,685 last year.
A £10,000 with-profits bond taken out five years ago now has a surrender value of £10,961, down from £13,865 last year.
R&SA Life finance director Keith Greenfield says: “It is well documented that our funds are not as strong as others and we are smoothing as much as we think is prudent. We have a contingent loan arrangement and we have called on it last year and in January.”
Insurance analyst Ned Cazalet says: “R&SA was a top seller of with-profits bonds in the late 90s and now has little prospects for the future. It has very little capital and very little room to pay bonuses or smooth.”