Premium hikes help Direct Line

Updated: 

Insurance giant Direct Line Group has unveiled a hike in underlying profits as price rises and moves to shun riskier drivers helped boost results.

In its first set of annual figures since making its stock market debut last October, the Churchill and Direct Line group said underlying earnings rose 9.3% to £461.2 million in 2012.

It has been axing jobs to save £100 million while also increasing motor premiums and withdrawing cover from riskier drivers to turn around its core insurance business over the past two years.

Direct Line - wholly-owned by Royal Bank of Scotland until last year's float - said it had achieved 70% of its cost savings goal and was in "advanced plans" for the remainder.

It warned over more redundancies in November after cutting 236 jobs, on top of nearly 900 call centre and other roles that were shed last year and around 70 senior management jobs lost.

Direct Line Group pushed up average new business premiums by 2% for motor insurance last year, although existing customers saw a 6% fall in renewals as it looked to boost retention rates. But charges relating to its restructuring hit bottom-line profits in 2012, down from £342.9 million in 2011 to £249.1 million.

Paul Geddes, chief executive of Direct Line Group, said the group has made "good progress" on its transformation plan after all five of its divisions were profitable last year. He added: "However, there is no room for complacency as we face a competitive market, particularly in UK motor, where there are also expected to be significant legal reforms."

UK competition watchdogs are investigating the motor insurance market after a probe by the Office of Fair Trading found insurance premiums were being driven up by ineffective competition.

RBS floated 30% of Direct Line, valuing the company at about £3 billion in what marked the biggest initial public offering of 2012.

The bank must sell a majority stake by the end of next year and divest of the entire company by the end of 2014 as part of conditions of its £45.5 billion bailout at the height of the financial crisis. Shares were priced at 175p on their debut in October and have edged up to just under 211p.

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