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Profit Up 20% At Direct Line Insurance Group PLC

The share price of Direct Line Insurance Group (LSE: DLG) is currently up 1.5% following the release of the company’s results for the third quarter and first nine month of 2013.

The company has reported a 20.1% increase in operating profit for the first nine months of the year, up to  £417.8m from last year’s £347.9m. The increase came in the face of a 4.3% drop in gross written premium, a fall attributed to competitive market conditions in UK.  However, third quarter operating profit only rose 6.1% compared to the same period in 2012.

Direct Line’s combined operating ratio —  a measure of claim payouts, costs and operating expenses compared to the premiums received, which is the most useful way of evaluating an insurer’s profitability — improved by 4.3 percentage points, falling from 99.7% for the first nine of months of last year to 95.4% for the same period this year.

The company also confirmed the sale of  its UK closed life insurance business and its intention to pay a special dividend of 4p per share on completion of the deal.

Commenting on the results, CEP Paul Geddes said:

These are good results in competitive markets, with a 20% improvement in operating profit,  a 95.4% combined operating ratio and a return on tangible equity of 16.8%. Even after allowing for normal weather losses, our performance proves we are delivering our self-help agenda and making good progress towards our strategic targets.

“We continue to invest in technology, adapting to new ways in which our customers want to interact with us and with the aim of driving further business improvements. The launch of our own data centres, the first stage in the delivery of our IT migration to a stand-alone platform, is an enabler of this plan. Combined with our other major initiatives, we continue to transform our business.

Direct Line’s share price stands at 228.6p at the time of writing. That’s only 6% up so far this year, which falls far short of the FTSE 100 ‘s 14% gain in the same time. But it’s a 16% increase on this time last year, just beating the 14.8% rise in the FTSE 100.

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> Jon doesn't own shares in Direct Line Insurance Group.