The headline on a Government Employees Insurance Co. story in yesterday's editions was misleading. Company chairman John J. Byrne did not predict an early return to dividents but, as the story stated, he did say he would have "no problem" in recommending to his board of directors "an early return" to cash payouts on common stock.

Government Employees Insurance Co. chairman John J. Byrne said yesterday he would have "no problem" in recommending to his board of directors "an early return" to cash dividend payments for owners of the auto insurer's common stock.

The Washington firm has distributed no cash payouts since March 1975, but previously paid dividends on a regular quarterly basis since 1951. The last payments, in 1975, was 20 cents a share.

Byrne discussed the Geico dividend in response to a question following his address to the Washington Society of Investment Analysts, in which he expressed optimism about the company's future.

"We have managed through a frightening, but sobering crisis (and) now find ourselves in a prudent position and in exellent financial condition," Byrne said in prepared remarks.

He complained that while "the awesome events" of last year that brought Geico close to insolvency "were presented in all of their gory details almost hourly by the mdia . . . our recovery has not been such an attention getter."

Although Geico reported a profit on underwriting insurance of $2.5 million in the first quarter, Byrne said his firm has not yet reached a "satisfactory" level. He forecast a "moderate" underwriting profit for full year but at a level still not acceptable.

As for overall profitability, including gains investiments, Byrne restated an earlier forecast that Geico could have record of growing profits for the final two quarters of 1976 and this year's three months. Byrne said annual profits won't approach the $100 million level of some Wall Street forecast.

But he indicated that if first quarter profits of $9.4 million were multiplied by four figures higher than any net income in Geico's history."

Byrne also noted:

That in the first quarter of 1977, $2.1 million, reflecting tax benefits associated with previous losses.

Deferral of policy acquisition costs was resumed in the first quarter when $3.7 million was deferred.

Currently the company expects that Geico won't sell all of the 150,000 new preminums in 1977, which Byrne authorized earlier in the year. Policies in force are expected to stabilize at 1.7 million.

Claim frequency is down "materially," but the extent of individ-averages with the rate of increase in such claims slackening.