The firm reported pre-tax profits of £353 million for 2016, down sharply on the £507.5 million seen a year earlier after a cut to the so-called Ogden discount rate calculation.
The insurance sector was sent reeling last week after Lord Chancellor Liz Truss put forward changes to the discount rate calculation, which is expected to increase payments given to victims of life-changing injuries through medical negligence, car crashes and other incidents.
Ms Truss said, from March 20, the rate would be cut from 2.5% to minus 0.75%, reflecting the changes in gilt yields.
But boss Paul Geddes insisted Direct Line had a successful year in a market “disrupted” by the change.
Direct Line added it does not expect any “material” further impact in 2017 from the Ogden rate.
The change to the Ogden rate is now being consulted on and Direct Line said it hoped this would lead to a”better and fairer framework for claimants and defendants”.
Mr Geddes said that in some cases the change in the Ogden rate could mean a claim doubling, for example from £10 million to £20 million.
He added: “These are very delicate claims and we absolutely want to look after people with bad accident claims.”
“We’re just trying to get a far judgment,” he said.
Direct Line’s shares fell 1 per cent after the results.
Shares across the sector were hammered after the decision was announced last week.
The Association of British Insurers has described the decision to change the way personal injury claims are calculated as “crazy”, saying it would have a huge impact for individuals, businesses and public bodies.
It estimates up to 36 million individual and business motor insurance policies could see premiums increase as a result of the changes.
It is feared young drivers in particular could struggle to find affordable insurance.
Stripping out the Ogden rate change, Direct Line said 2016 pre-tax profit would have increased by 12 per cent to £570.3 million.
It said new business sales growth was at its highest annual level since its stock market float in 2012 across the motor and home insurance divisions.
The group plans to cut expenses in 2017, but said this would come from an ongoing efficiency drive rather than job losses.