Insurer Direct Line has bolstered its balance sheet and cut payouts to shareholders as it braces itself for Brexit.

Like other insurance companies, Direct Line holds a large amount of bonds which could be vulnerable to economic turbulence.

The company on Tuesday said that its overall payout to shareholders for 2018 would be 17 per cent below the previous year as the size of the special dividend — which Direct Line has paid in each of the past six years — was cut sharply.

Penny James, chief financial officer, said the insurer had decided to strengthen its capital base because of “political uncertainty”.

Direct Line’s solvency ratio — a measure of capital available as a proportion of the minimum required — stood at 170 per cent at the end of last year, up from 162 per cent a year earlier.

Ms James is due to become chief executive later this year, taking over from Paul Geddes who will step down after 10 years. The two told investors that they would keep the capital base under constant review and would consider the best ways of returning any excess capital to shareholders.

The results were the last for Mr Geddes. “It’s good for me to be bowing out on a strong set of results in competitive markets,” he said.

Overall premiums slipped 5 per cent as partnerships with Nationwide and Sainsbury’s came to an end, but premiums from the company’s own brands rose.

Pre-tax profits increased 8 per cent to £583m though, as lower investment profits and reserve releases were more than offset by lower finance costs.

The regular dividend rose 3 per cent, but the special dividend was cut by 45 per cent, leading to a total payout for the year of 29.3p per share, against 35.4p for 2017.

Analysts said the results were slightly ahead of expectations.

Andreas van Embden, at Peel Hunt, said: “Paul Geddes has successfully steered Direct Line back to a pre-eminent position in the UK insurance market and he leaves [the company] in a strong position.”

The company’s shares were flat on Tuesday at 355p, more than double the price at which Mr Geddes floated the company in 2012.

Ms James said her priorities for the next couple of years were to deliver a range of technology improvements that would allow the company to improve its pricing and customer service, and to cut costs.

She also said Direct Line would launch a brand called Darwin, which would be rolled out on price comparison sites. “It is a little like building your own start-up,” she said. “It will use different pricing techniques based on machine learning.”

According to Citi analyst James Shuck, Direct Line’s market share in motor insurance sold on price comparison sites is just 6 per cent, which is well below its share of the wider motor market.

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