Direct Line zooms to top of FTSE 100 after generous special dividend announced and profits beat expectations

Hayley Kirton
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Investment returns had left the insurer in a bit of a jam (Source: Getty)

Direct Line Insurance Group raced to the top of the FTSE 100 today, after the insurer announced a generous special dividend and profits zoomed past analyst expectations.

The figures

Profit before tax for the insurer fell to £298.5m for the first half of 2016, down 5.2 per cent from £315m the year before, after investment returns failed to deliver. The company also reported a slip in operating profits from ongoing operations to £323.6m, although this was better than analysts had expected.

However, gross written premiums grew to £1.6bn, up 3.9 per cent on the results for the first half of 2015.

The company also announced an interim dividend per share of 4.9p per share and a special interim dividend of 10p per share.

Shares in the company closed up 12.6 per cent at 399.9p.

Why it's important

Investment returns haven't delivered for Direct Line over these last six months. The firm announced investment returns have slumped to £91m, down 17.1 per cent on last year's £109.8m.

The insurer also had an additional expense to concern itself with this year, forking out £24m as a levy to cover Flood Re, the government-backed reinsurance scheme launched in April.

The firm also suffered to the tune of £13m from higher levels of claims from major weather events.

While the vote to leave the EU in June may have seriously hampered the banking industry, insurance hardly escaped scratch-free.

However, Direct Line, which is a UK-based and focussed business, said today it felt it was "well prepared" for the result, with "immediate investment volatility actively managed and no operational impact".

What Direct Line said

Paul Geddes, chief executive of Direct Line Group, said:

I am pleased with our results over the first half of 2016, as we delivered an excellent performance against a very strong comparator from the previous year. We have generated operating profits of over £320m in spite of weaker investment markets and the addition of the new Flood Re levy.

Geddes later told City A.M.: "We had been holding our capital high going into Solvency II because the risk of Solvency II and its execution and, now we've done Solvency II, we felt able to give 10p back to shareholders."

What analysts said

A note from Shore Capital called today's figures an "excellent set of interim results", which were "much better than we and the market had expected".