Direct Line sees profits fall 5.2% to £298.5m
The owner of Direct Line and Churchill insurance has posted a fall in half-year earnings despite further hefty hikes in the cost of car cover.
Britain's biggest motor insurer - whose brands also include Green Flag and Privilege - posted a 5.2% drop in pre-tax profits to £298.5 million for the six months to the end of June.
It said motor insurance prices surged by 9.5% year on year in its second quarter as it looked to offset the higher cost of claims, with more expensive repairs and guaranteed car hire pushing up prices.
But the group said deflation was easing off in home insurance, with prices broadly stable, down 0.3% in the second quarter, against falls of 2.3% in the previous three months and 3% at the end of 2015.
Direct Line said total insurance policies fell 2.7% over the half-year, although it saw a rise of 3% across home and motor.
The group said it had been "w ell prepared" for the EU referendum and had seen "no operational impact".
Despite its fall in half-year profits, it offered cheer to investors with a special dividend payout of 10p a share, on top of an interim dividend of 4.9p a share.
Direct Line chief executive Paul Geddes said he was "pleased" with the results, which came up against tough comparatives from a year earlier.
He added: "Although there remains a range of uncertainties in the macro-economic environment, we gain confidence from the strength of this performance."
Direct Line's underlying operating profits fell 3.6% to £323.6 million.
Its earnings were impacted by a £24 million hit from the annual Flood Re levy, which was introduced in April to relieve insurers of the heavy costs of flood-related damage and help households obtain affordable insurance in the worst-hit areas.
Direct Line forked out £139 million for flood claims at the end of last year after a series of storms lashed the UK in December. The group also said it saw £13 million paid out for major weather events in the first half of 2016.
But g ross written premiums lifted 3.9% to £1.6 billion, thanks largely to its robust performance in motor insurance.
Shares lifted nearly 6% after the results and dividend cheer.
Eamonn Flanagan, analyst at Shore Capital, praised an "excellent set of interim results".
But he said the rise in motor accident claims costs was a "worry".