Direct Line cost cuts offset falling insurance premiums

The group, which also owns Churchill, Privilege and the Green Flag roadside recovery service, said it would pay a second special dividend of 4p per share.

The insurer, which employs around 2,000 staff in Leeds and Doncaster, said pre-tax profit rose 12.2 per cent to £456.8m in the year to December 31.

The firm cut costs by 5.6 per cent over the period and beat a target for £1bn of savings set at its flotation in 2012. It said at the time of its float it would cut costs by reducing staff and marketing. This time last year Aviva employed around 4,300 people in Yorkshire.

The business, which was spun out of the Royal Bank of Scotland, beat City forecasts even though gross written premiums fell by 3.8 per cent 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 £1.34bn fell 5.6 per cent and in-force (active) policies fell by 2.4 per cent. It added that its home gross written premium of £898.6m was 4.7 per cent lower, as in-force policies fell by 5.2 per cent.

Motor premiums increased marginally in the fourth quarter and home insurance 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 - showed an improvement of 95 per cent in 2014 compared with 95.2 per cent the year before.

It added that in the new financial year it expects a combined operating ratio of between 94 per cent and 96 per cent after normalising for claims from major weather events.

Chief executive Paul Geddes said: “After paying the regular and special dividends for 2014, we will also have returned a total of £836m 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.”