Direct Line has rejected a £3.1bn takeover offer from a Belgian rival, saying the proposal “significantly undervalued” the business.

In a statement released on Wednesday afternoon, the British insurer said it had received a “highly opportunistic” offer from the Brussels-based Ageas last month and rebuffed it, saying it was “uncertain and unattractive” for shareholders.

The rebuttal came after Ageas said earlier on Wednesday that it was in the “preliminary stages” of considering a bid for the Kent-based firm.

Direct Line shares reached 205 pence at one point on Wednesday, more than 25% higher than the 163p closing price on Tuesday.

Ageas said its proposal was for a cash and share offer that would pay 233p a Direct Line share, 43% more than Tuesday’s closing price. The deal would have involved Direct Line shareholders receiving 100p a share in cash and one newly issued Ageas share for every 25 Direct Line shares they own.

Direct Line said it had received a “highly conditional” and “non-binding indicative proposal” from the rival insurer in mid-January and this had been “unanimously rejected” by its board on 29 January.

It said the board was confident of Direct Line’s prospects as a business given a strong strategic positioning, powerful brands and robust capital position.

The offer came after a tumultuous period for Direct Line, which has been hit by sluggish profits and payouts to customers after discovering it had breached rules fair pricing. Last March it posted pre-tax losses of £45m, compared with a £446m profit posted in 2021, blaming the hit on soaring inflation, extreme weather and market volatility.

The company agreed in July to repay £30m after discovering it had charged existing customers more than new ones for car and home insurance policies.

Adam Winslow, the former Aviva UK chief, will take over as Direct Line’s chief executive next week, replacing Penny James who stepped down last year.

The company said Winslow would focus on “refreshing the strategy and operational focus of the group with the clear objective of returning to a sustainable level of operating profit over time”.

Ageas said on Wednesday it was confident in the underlying attractiveness and future opportunities of the UK personal lines insurance sector. “Over the long term, the UK personal lines sector has proven to be structurally profitable and, through its own UK operations, Ageas sees its strong potential,” it said.

It said the combination of the two companies would lead to the creation of a strong franchise in the UK with a focus on household and motor insurance.