Admiral, one of Britain's largest motor insurers, reported a pretax profit of 220 million pounds ($265 million), up from 212 million a year earlier and topping the 197.1 million in a company-supplied poll of 13 analysts.
Profit rose despite a change in the so-called 'Ogden Rate' which cost the company 33.3 million pounds in the first half of the year.
The improvement was mainly due to the release of reserves which had been put aside to pay out old insurance contracts.
"Profit growth, even if modest, is more exciting considering the 33 million pound Ogden headwind," David Stevens, group chief executive officer, said in a statement.
The change in the 'Ogden rate', or discount rate, has required insurers in Britain to set aside more money than they expected to compensate victims of serious car crashes.
The insurer said it expected the total impact of the change to be between 50 and 60 million pounds.
The change also negatively impacted the company's Solvency ratio, a measure of balance sheet strength, which fell to 190% from 196% a year earlier, CFO Geraint Jones told Reuters.
The company increased its interim dividend and said it would pay 63 pence per share, higher than the 56.5p predicted by the analysts in a company-supplied poll.
Admiral was the top gainer on the FTSE 100 with shares up 4.1% at 0900 GMT.
Its group loss ratio weakened to 69.1% from 65.2% last year, driven by losses in international insurance businesses totalling 2.7 million pounds compared with 0.6 million pounds a year earlier.
European operations strengthened, but that improvement was offset by higher claims costs in the United States.
"Whilst trends in European remain strong, International Insurance missed [UBS estimates] driven by a higher loss ratio in the U.S.," UBS said in an analyst note.
In Britain, Admiral saw a smaller than normal rise in the number of customers, said CFO Jones.
"In the last 12 months we've started to move our prices up and that's made us less competitive in the market and so fewer customers are coming to us," he said.
"The reason we are raising our prices is that we're seeing the cost of claims increasing."
(Reporting by Lena Masri; editing by Simon Jessop)
By Lena Masri