New mortgage misery at L&G

INSURER Legal & General added to policyholder gloom by cutting bonus rates and warning that 75% of people who had bought an endowment from the company may face a mortgage shortfall.

Annual bonuses paid on conventional endowment policies are being cut to 0.75% and 1.25% from 1% and 1.75% the previous year.

But David Prosser, chief executive of Legal & General, threw down the gauntlet to his rivals, saying he aims to outperform the market by 10% this year. He said: 'We can take market share because we have a better business model.'

L&G unveiled a 9% profits rise to £759m. Its share of the UK life insurance market rose to 8.6% from 7.9%.

Dividends rose 2.5% to 4.9p, but the shares eased 2p to 101p as dealers, used to strong performances from L&G, branded the results unexciting.

Prosser expressed concern that the regulations could spell a slow death for with-profits savings polices.

Traditional with-profits policies were only 8% of L&G's new business, down from 47% in 2001. 'The rules are going to bring about the long-term decline of the with-profit product,' he said.

Separately, French insurance giant Axa reported a 7% increase in profits to £930m. Profits in the UK and Ireland division fell £27m to £72m.

UK chief executive Dennis Holt said: 'We are well positioned to benefit from the recovery.'