(Adds details, analyst comments and shares)
Nov 3 (Reuters) - Direct Line Insurance Group, Britain's largest motor insurer, on Tuesday reported a bigger than expected rise in motor insurance prices for the third quarter, helping to boost its sales.
The insurer, whose brands include Churchill, Green Flag and Privilege, reported an 8.4 percent rise in risk-adjusted motor prices on Tuesday. It also said it had cut costs by 7 percent in the first nine months of the year.
Shares in Direct Line rose 1.3 percent to 396.4 pence, making the stock one of the top gainers on the blue chip FTSE-100 index.
Strong competition in British motor insurance has put pressure on prices in the past few years, partly because of the growth of price-comparison websites. But in the past few quarters prices have been increasing.
A benchmark survey by roadside assistance firm AA Plc showed a 4.8 percent increase in the third quarter in the Shoparound quote - an average of the five cheapest quotes returned from price comparison sites as well as direct insurers and brokers.
Direct Line said gross written premiums rose 3.1 percent to 844.5 million pounds ($1.3 billion) in the third quarter, with a 6.8 percent rise in gross written motor premiums.
"This is a good headline increase, and management indicate this is where they need to be to pricing to meet their target loss ratio," Morgan Stanley said in a note to clients.
Direct Line, which competes with Admiral Group, RSA Insurance and Aviva Plc, also said it had benefited from the absence of claims due to major weather events and was on track to achieve its 2015 targets.
On the new European capital rules for insurers that come in in January 2016, Direct Line said it would use a standard model to measure its solvency levels, but would apply to Britain's regulator to use a so-called "internal model," designed to cut capital costs, from mid-2016.
$1 = 0.6478 pounds Reporting by Noor Zainab Hussain in Bengaluru and Matt Scuffham and Carolyn Cohn in London; Editing by Steve Slater and Jane Merriman