The owner of insurers Churchill and Direct Line said the value of car premiums it sold fell by nine per cent in the first half of the year as competition in remained intense.
Direct Line Insurance said average car insurance prices were two per cent lower in the second quarter and four per cent lower in the previous period, while car policies fell 1.9 per cent to 3.7 million in the six months to June 30 compared to a year ago.
The firm said that while pressure on prices eased in the second quarter, it was unclear if the market had hit bottom, or if prices would fall in the second half of 2014.
Overall the group posted a pre-tax profit up 7.8 per cent to £225.1 million, beating expectations as lower restructuring costs offset the reduction in motor and household insurance business and an increase in bad weather claims.
The company said its half-year result reflected its underwriting discipline in a competitive market.
According to data by the AA, average car premiums fell 19.3 per cent in the year ending June 30 - the largest 12-month decrease since the group started compiling these figures 20 years ago.
Over the last two years the car insurance industry has seen rates plunge as regulators have clamped down on fake whiplash claims as well as garage repair bills that have padded out premiums.
In a tough household insurance market Direct Line said the value of gross premiums fell five per cent to £216.8m. The value of motor gross premiums fell to £665.4m from £731.4m.
The group added it was in talks to sell its international division, based in Italy and Germany, in a move which is valued at £427m.
Overall the group said its in-force policies fell 4.1 per cent to 17.7 million, due to a fall in travel policies connected to bank accounts.
Direct Line shares jumped three per cent as they handed investors a special 10p dividend, which takes its interim pay-out to 14.4p a share.
The group added it was on track to reach its full-year target of £1billion savings.
But Shore Capital analyst Eamonn Flanagan reiterated his sell recommendation on the stock, adding he did not see much "upward pressure on premium rates".
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