(Reuters) - Britain's biggest car insurer Direct Line (L:DLGD) on Tuesday boosted its interim dividend and declared a special payout, after reporting better-than-expected earnings for the first half of the year on a sharp drop in motor insurance claims.
Direct Line estimated claims from the pandemic's impact on travel and business interruption to be 25 million pounds and 10 million pounds, respectively, but motor insurance claims recorded a sharp drop as Britons drove less because of lockdowns and restrictions.
Direct Line shares jumped 7% to 328 pence as investors welcomed the dividend payouts despite the challenges brought on by the pandemic. The company did not pay a dividend in 2019.
Direct Line raised the interim dividend by 2.8% to 7.4 pence per share and set a special interim dividend of 14.4 pence a share.
Operating profit in the motor insurance business jumped 43.4% to 220.5 million pounds during the first half ended June 30, with claims notifications recording a 70% drop in April at the peak of the stay-at-home orders.
"Across the group the impact of COVID-19 on operating profit was broadly neutral, as the additional travel and business interruption claims, alongside a reduction in investment asset returns and higher operating expenses, were offset by favourable claims frequencies in Motor and Commercial," the company said.
The midcap company, which owns brands such as Churchill, Green Flag and Privilege, said operating profit fell 3.4% to 264.9 million pounds, but was above the 239 million pounds estimated by analysts.
Direct Line, once part of the Royal Bank of Scotland (L:RBS), said gross written premiums inched up by 0.4% to 1.58 billion pounds, while combined operating ratio dipped to 90.3% from 92.5%. A ratio below 100% means the insurer earns more in premiums than it pays out in claims.