Focus on costs drives up profits at Direct Line

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INSURANCE group Direct Line, which was spun off from Royal Bank of Scotland last year, has vowed to continue driving down its costs after reporting a 33 per cent increase in first-quarter operating profits.

The UK’s largest car insurer – still 48.5 per cent owned by RBS – said market conditions would remain competitive throughout the rest of the year, but it would remain focused on profitability rather than volume growth.

Direct Line, which also offers home, travel and pet insurance, posted an operating profit of £107.5 million for the first three months of the year, up from £80.9m a year earlier but short of the £111.9m forecast by analysts.

The firm is aiming to trim £100m off its cost base by 2014 and said it would continue to “pursue initiatives to improve efficiency” following a 4.5 per cent fall in gross written premiums to £1 billion.

Chief executive Paul Geddes said the dip reflected its strategy of maintaining prices and reducing its exposure to riskier drivers.

He said: “The UK market remains competitive, particularly in motor.

“We made some deliberate choices in the quarter that had the effect of reducing our motor premiums. We believe these choices achieved an appropriate balance between managing risk and protecting value.”

Investec analyst Kevin Ryan said the motor insurance was becoming “increasingly competitive” but the broker retained its “buy” rating on Direct Line’s shares. He added: “The attraction of the business for us remains one of a company in recovery with plenty of flexibility.”