Direct Line, which was spun out from Royal Bank of Scotland last year, is to pay shareholders a maiden dividend of 8p per share after reporting better-than-expected profits for 2012.
Chief executive Paul Geddes said the group was also on track to trim £100 million off its annual running costs by next year, having announced about 1,100 job cuts since September.
He added: “We have made good progress since the beginning of our transformation plan and our 2012 performance is further evidence that we have made the right strategic decisions and are executing our plans well, with an increase in operating profit from ongoing operations of 9.3 per cent to £461.2m.”
The figure came in just ahead of market estimates of £454m, while the dividend also beat’ expectations for a 7.8p payout.
Direct Line’s board proposed that the 8p final dividend be paid on 11 June and Geddes said the insurance group was aiming to make real terms increases to the payout each year.
Investec analyst Kevin Ryan said: “We believe the scope of Direct Line’s personal insurance product offerings gives it plenty of scope to boost returns – it is a lot more than just the UK’s largest motor insurer.”
However, Geddes said stiff competition and regulatory changes would pose a challenge this year, as the car insurance industry is being investigated by the Competition Commission after a probe by the Office of Fair Trading found the “dysfunctional” market was inflating drivers’ premiums by £225m a year.
Along with its eponymous brand, the group owns the Churchill and Privilege insurance businesses and the Green Flag breakdown service.
Although Direct Line is now run separately from RBS, the state-backed lender still owns about two thirds of the business following its flotation in October. The bank, ordered by European regulators to dispose of Direct Line as a condition of its 2008 taxpayer bailout, received £911m by floating off 35 per cent of the insurer.