Profits up at Direct Line despite fall in referral fees

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Direct Line, one of the UK’s biggest motor insurers, received £21.1m in referral fees from solicitors in 2012, it reported today.

In its annual financial statement, the insurer said revenue from referral fees fell by 24% due to a reduction in non-fault claims volumes. The receipt of referral fees will be banned from April. The company increased operating profit in its motor division from £245.8m in 2011 to £261.8. Pre-tax profit taking into account restructuring costs was £249.1m, on turnover down 10% to £4.05bn. Overall profits rose by 9.3% to £461.2m.

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Direct Line, which insures more than four million drivers in the UK, was one of the campaigners for lower solicitors’ fees in the government’s consultation on the RTA Portal, the response to which was published yesterday. The insurer argued for fixed claimant costs of £255 for low-value cases, almost half the final figure eventually agreed by the Ministry of Justice.

In its financial statement, Direct Line said the UK motor market was likely to remain ‘particularly competitive’ during 2013, with the package of legal reform, gender-neutral pricing and the referral of the insurance market to the Competition Commission yet to come into effect.

The report added: ‘Overall we believe that, taken together, the effect of the package of civil justice reforms should be at least "net neutral" for the group in the medium term. However, there remains considerable uncertainty about the details and timing of the reforms. We will continue to prepare for a range of outcomes.'

Paul Geddes (pictured), chief executive of Direct Line Group, said: ‘Our 2012 performance is further evidence that we have made the right strategic decisions and are executing our plans well, with an increase in operating profit from ongoing operations of 9.3% to £461.2m.

‘However, there is no room for complacency as we face a competitive market, particularly in UK motor, where there are also expected to be significant legal reforms. Our transformation plans target further benefits and we have made substantial progress on our target to achieve £100m of gross annual cost savings in 2014.’

Direct Line said basic and diluted earnings per share of 12.3 pence fell 25.9% compared with 2011 reflecting the increase in restructuring and other one-off costs which more than offset the increase in operating profit from ongoing operations. A final dividend of 8p per share has been proposed, which will be raised annually in real terms from 2013.

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