Direct Line posted a 58% increase in pre-tax profits to £101 million this year after a dramatic improvement in its motor operating ratio.

This is despite a nine per cent rise in claims overall, which outstripped the rise in premiums. Expenses also increased 15% on the year, reflecting the insurer's high spend on advertising.

Overall, premium income was up by 15% as the insurer added new customers to all of its lines of business.

Chief executive Ian Chippendale said: "These results underline Direct Line's pre-eminent position in the UK personal lines insurance market."

He added: "Direct Line's

customers recognise the consistent good value in motor and home insurance. Significant numbers are being attracted to other Direct Line products, including motor rescue, travel and pet insurance."

The UK's biggest direct writer added another 126,000 motor policyholders to its book, a rise of six per cent to 2.179m, and hiked up the average motor premium by eight per cent – as a result, the operating ratio for the motor book improved from 109% to 102%.

The home insurance book

fell slightly in profitability, although the number of policyholders increased from 863,000 to 894,000. The average written premium increased by just one per cent and the operating ratio increased from 85% to 90%. Premium income rose by six per cent to £178m.

Direct Line Rescue now has 328,000 customers and will become the third largest motor breakdown organisation once the acquisition of Green Flag, which has more than 2.5m customers, is completed.

Meanwhile, the direct writer is starting to make headway into the travel and pet insurance markets. The number of travel insurance policies increased by 55% to 163,000, boosted by new legislation that started to untangle consumers from tie-ins with tour operators.

The number of pet insurance policyholders has doubled over the year to 42,000.