By Lorna Tan, Finance Correspondent

POLICYHOLDERS of traditional or participating life insurance policies such as endowment and whole life can expect lower bonuses this year, said the Life Insurance Association (LIA) yesterday.

A notable exception is local insurer TM Asia Life, which told policyholders in January that it will not reduce bonus rates this year despite the adverse investment conditions.

TM Asia Life's majority shareholder is Tokio Marine Holding.

Participating, or par, policies pool premiums to invest collectively in a diversified portfolio of stocks, bonds, loans, properties and cash.

Policyholders benefit from a combination of guaranteed and non-guaranteed returns in the form of bonuses. Once declared, annual bonuses are guaranteed.

LIA said yesterday that bonuses are determined based on the performance of the par funds, so bonuses will be hit by crashing equity markets last year.

LIA president Darren Thomson said: 'Like many other financial products and investments, par funds have not been spared the brunt of the recent financial markets meltdown.

'The bonuses for par policies in 2008 are therefore expected to be lower than those declared in preceding years.'

But Mr Thomson assured policyholders that despite the turbulent past year, all life insurers have been able to maintain the solvency of their par funds.

In the coming weeks, most policyholders can expect to receive letters from their insurers advising them of the bonus revisions.

Mr Tan Hak Leh, managing director of Great Eastern Life, told The Straits Times that it will adjust its bonus downwards for par plans, but it will be competitive.

British insurer Prudential Singapore, insurance cooperative NTUC Income and Canadian insurer Manulife declined to comment on their bonus plans yesterday. AIA said that its bonus rates are still under review.

Income is declaring its bonus today, with Prudential and TM Asia Life doing so next month. Unlike its rivals, the latter has never reduced its bonus.

Its senior vice-president of distribution, Mr Francis Lee, told The Straits Times yesterday: 'We have maintained our bonus rate during difficult economic conditions such as the Asian financial crisis in 1997/1998 and the Sars outbreak in 2002/2003.'

In 2001 and 2002, AIA policyholders of endowment policies were hardest hit when they received no maturity bonuses, a percentage of all accrued annual bonuses. Maturity bonuses are paid upon maturity for endowment plans, or upon death or surrender for whole life policies.

In 2002, Income reduced its bonus for two consecutive years - a 20 per cent cut in 2002 and about 50 per cent in 2003. The cuts were attributed to low investment returns.

This article was first published in The Straits Times.