The Ministry of Justice announced a new formula for calculating compensation payments for those who suffer long-term injuries, which means insurers will have to increase payouts, the BBC reports.
As a result, Direct Line said profits for 2016 had fallen 30 per cent to £353m.
However, it said it had seen strong growth in home and car insurance.
The company also said it did not expect this year’s results to be affected by the change in compensation calculations.
When the change to the payout formula was announced last week, a number of insurance companies said their profits would be hit.
The Ministry of Justice said it was reducing what is known as the discount rate from 2.5 per cent to minus 0.75 per cent.
The move will result in more money for the victims of accidents, and so increase costs for insurance companies.