Norwich Union has slashed final bonus rates on its with-profits funds by up to 15 per cent compared to last year.

The insurer said the final bonus has been reduced to bring payouts in line with the fund’s assets.

Regular bonus rates have been held on conventional policies, while for unitised policies, regular bonus rates have been reduced by 0.75 per cent.

Norwich Union said the results of its funds this year highlight the benefits of smoothing, a policy of holding back some of the profits during good years to ensure payments are still made in the poor years.

In 2008 the CGNU and CULAC funds fell in value by 11.9 per cent, NULAP dropped by 12.3 per cent and the Provident Mutual fund 1.5 per cent (after tax).

However, this compared favourably to a fall in the FTSE All-Share Index of 29.9 per cent over the same period.

David Barral, director at Norwich Union said: “In a time of market turmoil, the smoothing effect of with-profits together with the option of valuable guarantees is proving to be a popular choice with investors and professional advisers.”

Norwich Union also cut its exit penalties, imposed on those who take out their cash before the investment matures, from 16.2 per cent to 11 per cent.

However, the significant cut in the final bonus will be a blow to investors, according to consumer groups.

Which? personal finance campaigner, Dominic Lindley, said: “This is yet more bad news for Norwich Union’s long-suffering with-profits policy holders, who will be disappointed by the cuts in final bonuses.

“Norwich Union used a number of loopholes to deny its policy holders a fairer slice of its inherited estate, now their misery is being compounded by today’s news.”

Which? said FSA rules allowed Norwich Union to deduct money from its inherited estate to pay shareholder tax bills, pay compensation for misselling claims and subsidise the acquisition of new business to the fund.