Insurance group Legal & General yesterday cut bonus rates on endowment policies for the second time in five months after posting a seven per cent drop in operating profits.

The group, which has offices in Hove, blamed falling stock markets for its decision to cut both annual and terminal bonuses.

Savers with a typical 25-year £50 per month endowment policy due to mature on March 1 will get £59,047 - more than ten per cent below the equivalent payout of £66,061 on November 1 last year.

The same policy would have yielded £73,566 this time last year before the group cut terminal bonuses in October.

The group said the reductions reflected poor stock market performances in the past three years but said its mix of equities and bonds meant bonus declarations did not reflect the full scale of share price falls.

It said guaranteed benefits had to grow more slowly at times when expectations of future inflation and investment returns were low.

Finance director Andrew Palmer said: "We can't direct the gravity pull of the equity market."

The group said the fall in operating profits - down £52 million to £695 million - reflected a £140 million hit to cover the cost of annuity customers living longer.

However, the company said setting aside the charge, operating profits would have grown by 12 per cent on the back of a 13 per cent rise in world-wide new business.

Operating profits came in above analysts' expectations, which ranged from £581 million to £619 million.

Given the changed assumptions on policy holders' life expectancy and current market uncertainty, Mr Palmer said: "We feel pretty good about these results."