Direct Line Insurance Group (DLGD.L), Britain's biggest car insurer, reported a 47 percent rise in quarterly pretax profit but said its core UK motor insurance market is expected to remain competitive in 2013.
European motor insurers have been faced with sluggish price growth because of intense competition, exacerbated in the past decade by the rise of price-comparison websites.
Direct Line, which was spun out of Royal Bank of Scotland (RBS.L) in October, said it would continue to target underwriting profitability at the expense of volume.
The company, which also offers home, travel and pet insurance, said gross written premium fell 4.5 percent to 1 billion pounds, with a fall in motor insurance partially offset by growth in its international business.
Chief Executive Paul Geddes said gross written premiums in motor were hurt by the company's strategy to maintain prices and reduce its exposure to riskier drivers.
"With gender-neutral pricing being implemented at the start of the year, we took a decision to temporarily step back from that young-driver market place," Geddes told reporters in a post-earnings call.
The EU banned insurers' practice of charging men and women different prices as sex discrimination late last year.
"We kept our prices flat year-on-year in a market that was down sort of 5 percent," Geddes said.
Direct Line's shares were down 1.4 percent at 201 pence at 0815 GMT on the London Stock Exchange on Friday.
"The issue is the increasingly competitive nature of UK motor insurance; rates are falling and Direct Line is giving up exposures as a consequence," Investec Securities analyst Kevin Ryan said in a note.
"This is sensible but there is no escaping the fact that making money in this market is becoming more challenging," he said.
Pretax profit rose to 94.3 million pounds ($146.3 million) for the quarter ended March 31 from 64.1 million pounds a year earlier.
(Reporting by Karen Rebelo in Bangalore; Editing by Don Sebastian)