Bonus rates cut

The company, which is main sponsor to the Saints and the Friends Provident St Mary's Stadium, and which demutualised and floated in 2001, also warned that unless there was a strong recovery in equity markets, further reductions in bonus rates were likely. The next formal review is due later this year.

In a statement, the company said: "The fall in investment markets over the last three years has impacted the returns for all of our savings customers, not least for with-profits policyholders whose policies share in the investment profits and losses of the with-profits fund.''

Friends Provident said the move was designed to maintain fairness between different groups and generations of policyholders and to generate policy payouts broadly in line with their investment value.

The firm added that its decision to cut bonus rates would increase the guaranteed benefits to over 1.6 million with-profits policy holders and ensure that maturing policies would continue to benefit from good returns at up to ten per cent a year after tax.

Chief executive Keith Satchell said: "We have in place the key components for success that will see Friends Provident emerge as one of the highest ranked players in our chosen sectors.

"A business model with flexibility and the capacity to grow, together with a commitment to service excellence and the innovative application of technology, have all contributed to our progress in 2002 and will drive further growth in 2003.''

With-profits policies, which aim to smooth out stock market volatility by spreading returns across the life of the product, are often taken out as pensions or to pay off mortgages.

It has cut Unitised With-Profit Bonds to 2.5 per cent from 3.7 per cent, New Generation pension Plan cut to 3.9 per cent from 5.15 per cent, and Unitised Pension Investment Bond chopped to three per cent from 4.25 per cent.