The owner of insurers Churchill and Direct Line has posted higher profits after a purge on costs helped it offset falling premiums in home and motor markets.
Direct Line Insurance said its pre-tax profit lifted 12.2% to £456.8 million in the year to the end of December, as it cut costs by 5.6% over the period and beat its target for £1 billion of savings set at its flotation in 2012.
The Bromley-based business, which was spun out of the Royal Bank of Scotland, was able to beat City forecasts even though gross written premiums fell by 3.8% during the year amid falling prices in motor and home insurance.
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 inflated hire car and garage repair bills that have padded out premiums.
The FTSE 100 firm said its motor gross written premium of £1.34 billion reduced by 5.6% and in-force policies fell by 2.4%, compared with the year before.
It added that its home gross written premium of £898.6 million was 4.7% lower, as in-force policies fell by 5.2% compared with 2013 and as the company continued to prioritise underwriting profit over volume growth.
Motor premiums increased marginally in the fourth quarter and home prices rose in the second half of last year. The firm has written around 16 million active policies.
The business said its combined operating ratio - a comparison of claims to premiums - was an improvement of 95% in 2014 compared to 95.2% the year before.
It added that in the new financial year it expects a combined operating ratio of between 94% and 96% after normalising for claims from major weather events.
The firm said: "The UK motor and home markets remain highly competitive with recent market conditions characterised by periods of market price deflation and of stability.
"Early 2015 has seen some additional, potentially seasonal, market pressure in motor and broad stability in the home market."
It said it "rigorously" controlled costs last year by reducing staff and marketing costs.
In September Direct Line agreed the sale of its international unit, comprising German and Italian operations, to Spanish rival Mapfre for £430.1 million.
The UK insurer also announced a special dividend of 4p per share, plus a 4.8% increase in the final dividend to 8.8p a share.
Chief executive Paul Geddes said: "After paying the regular and special dividends for 2014, we will also have returned a total of £836 million to shareholders since we began life as a public company."
Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers, said: "The group continues to walk the line between profit margin and volumes, with volumes being sacrificed for profit."
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