Direct Line Insurance Group, Britain's largest motor insurer, posted a robust 50 per cent jump in first-half profit from continuing operations, beating analysts' expectations.
Shares in the FTSE-100 company surged to an all-time high on Tuesday, ranking among the top gainers on the index.
Direct Line, best known for its brands Churchill, Green Flag, NIG and Privilege, said it had benefited from an absence of claims due to major weather events and higher-than-expected reserve releases.
The specialist car insurer reported an increase of 5.9 per cent in overall motor prices for the second quarter of 2015 from a year earlier, higher than a 2.9 per cent rise reported by the ABI Quarterly Average Private Comprehensive Motor Insurance Premium tracker.
The sharp rise in motor premiums comes after three years of premium declines in the UK's motor insurance industry, which has been battered by fierce competition.
Data from price comparison website Confused.com and consultants Towers Watson also showed that after three years of falling prices, car insurance premiums rose in the second quarter by an average 3.6 per cent over the last 12 months.
Direct Line, which competes with the likes of Admiral Group, RSA Insurance and Aviva, however, maintained a cautious view on the motor insurance market.
"By pricing six per cent, we believe we have managed to match claims inflation but its too early to say that the motor market is pricing claims inflation or it is a turnaround," chief financial officer John Reizenstein said.
Pre-tax profit from continuing operations rose to £315 million for the half-year ended June 30, from £211.7m a year earlier, while gross written premium from ongoing operations rose 0.4 per cent to £1.55 billion.
Direct Line said it would pay an interim dividend of 4.6 pence, from 4.4 pence last year.
The company paid a special dividend of 27.5 pence per share this June as it returned the net proceeds from the sale of its international division, which it sold to focus on general insurance in the UK.
RBC Capital Markets analysts said they expected Direct Line's strong balance sheet to yield more special dividends.
The company's shares were up 2 percent at 373 pence by 9am.
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