L&G cuts bonuses for the second time in four months

Legal & General yesterday dished out more grim news for its two million with-profits policyholders, slashing its annual bonuses for the second time in four months.

Legal & General yesterday dished out more grim news for its two million with-profits policyholders, slashing its annual bonuses for the second time in four months.

The insurer also felt the impact of last year's dire stock market performance on its own profit and loss account, saying pre-tax profits fell 7 per cent to £695m for the 12 months to 31 December.

But the company offered some encouragement to shareholders, becoming one of a small club of insurers to raise their dividend. L&G increased the dividend by 2.5 per cent to 4.78p.

In contrast Axa, the French insurer, and Zurich Financial Services slashed their payouts to shareholders. Axa blamed the worst "equity depression" since 1929 for a 39 per cent cut to €0.34 a share, while the Swiss group Zurich dropped its planned payout to 1 Swiss franc from Sfr8.

They followed Aviva, which reduced its dividend by 40 per cent, and Swiss Re, which warned on Wednesday it would have to bring down its dividend for the first time since 1906. Prudential also indicated earlier this week it might cut its dividend for 2003.

L&G said bonuses on with-profit endowment and pension polices would fall by about 10 per cent this year, reflecting the ongoing downturn in stock market returns.

L&G, which also slashed bonuses in November, said with-profits policyholders have still benefited from the fact that it had not passed on to them the full impact of the downturn in the value of equities since 2000.

David Prosser, the chief executive of L&G, said the environment remained "tough". However, the company has experienced strong new business growth, driven partly by its deal with Barclays to sell its life and insurance products through the bank's branches. Shares in the company rose 3.75p to 74.25p.

L&G's profits were hit by the group's decision to boost its annuitant mortality reserves last month by £100m, to reflect longer life expectancy among men born between 1920 and 1930.

L&G raised £786m in a discounted rights issue six months ago. Mr Prosser said the move had "helped its balance sheet". It has also enabled L&G to maintain a triple A credit rating on its life fund.