Direct Line share price jumps after making its first ever growth promises

Britain’s largest motor insurer Direct Line is for the first time backing itself for the longer-term after today beating expectations on half-year earnings.

Shares in the FTSE 100 firm jumped over five per cent as shareholders were rewarded with a 39 per cent dividend increase.

Meanwhile, the insurer made a commitment to hike shareholder payouts by between two and three per cent each year over the medium-term.

“The combination of the two has been very well received by the market,” Direct Line chief executive Paul Geddes told City A.M..

We’ve delivered on our promises… [so] we’re sharing a bit more about our medium-term plans.

Read more: Direct Line profits take £217m hit from discount rate cut

Hargreaves Lansdown equity analyst Nicholas Hyett said: “Management’s confidence in future performance is particularly important.”

‘Less certain’

Direct Line posted operating profit of £360m, up 13.5 per cent. Figures were boosted by a £49m write back after over-estimating the cost the government’s decision to slash the discount – or Ogden – rate for calculating personal injury payouts in February.

At the time, the government gave strong indications it could row back on the decision by adjusting legislation.

However, the calling of June’s General Election and associated political fallout have hit hopes of a swift response.

Geddes said: “Compared with three or four months ago, the politics make it less certain it will get early legislation.”

City analysts had pencilled in a consensus of £268m in operating profit.

Hyett added: “It’s difficult to drag your eye away from the dramatic dividend increase in half-year results. However, it’s a reflection of a steadily improving underlying performance and management’s confidence it can be maintained.

There’s scope for a healthy special dividend in six months’ time.

Read more: Direct Line shrugs off discount rate cut to grow premiums in first quarter