Watchdog warns insurers on bonuses

MILLIONS of investors are likely to be disappointed in the New Year after the Financial Services Authority warned life companies not to overpay bonuses on with-profits policies.

The regulator, which attracted a swathe of criticism for its handling of the Equitable Life debacle, said the companies should not undermine their balance sheets with unjustified bonus payouts.

After a disastrous year for stock market investment, the FSA is concerned that competitive pressures could tempt life companies to maintain their bonus rates at a time when they can ill-afford to. It warned that any company deemed to be declaring an unusually large bonus rate may be asked to justify it.

'Most companies announce their annual bonuses early in the New Year. Companies that have written with-profits business must be prepared to justify to the FSA any bonus declarations they make and to explain how they balance factors such as smoothing of returns,' said the FSA's John Tiner.