Direct Line lift dividends 44% as profit surges

Direct Line announced bumper dividend payments as the insurance company posted a more than 50% increase in annual operating profit.

The FTSE 100 general insurer proposed a final dividend of 13.6p a share, up from 9.7p a year earlier. The payment pushed the payout for the year to the end of December to 20.4p from 14.6p.

Direct Line also announced a special dividend of 15p taking total dividends for the year to 35.4p a share, or £486m, from 24.6p in 2016.

Annual operating profit from continuing operations rose 51.4% to £610.9m as gross written premiums increased 3.6% to £3.4bn. In-force policies for Direct Line’s own brands rose 5.3% with strong performance at the motor and commercial divisions. The results also reflected a change to the personal injury discount rate that reduced profit in 2016.

Paul Geddes, Direct Line’s chief executive, said: "2017 is the fifth successive year in which we have delivered a strong financial performance. We have seen significant growth in our direct own brand policies as more customers respond positively to the many improvements we have made to the business. This success has resulted in our proposing an increase in the final dividend by 40.2% to 13.6 pence, bringing the total ordinary dividends to 20.4 pence, and declaring a special dividend of 15.0 pence.”

The results were in line with the company’s guidance on 9 February when it steered investors towards higher profit than expected and hinted at special dividend payments resulting from its strong capital position. The company's shares rose 1.8% to 395.5p at 08:10 GMT having gained 7% since the 9 February trading statement.

Direct Line’s combined operating ratio, which measures efficiency, strengthened to 91.8% from 97.7% a year earlier. An insurer is trading profitably when the ratio is less than 100%. Geddes said Direct Line’s strong performance meant it would have funds to invest for growth while targeting a combined operating ratio of 93% to 95% over the medium term.