One of the UK’s biggest insurers could get even bigger as Direct Line looks set to accept a sweetened £3.61bn takeover bid from Aviva.

It’s not the first time Aviva has tried to buy Direct Line, which includes the Churchill and Privilege brands. Last month its £3.3bn offer was rejected for being “highly opportunistic” and was said to have “substantially undervalued the company”.

The offer gives a 73.3% premium on Direct Line’s value, based on the closing price for its shares on Monday 18 November – the day before the first proposal was advanced.

In a statement to shareholders, Direct Line said: “The board of Direct Line remains confident in Direct Line’s prospects as a standalone company and continues to have conviction in the capabilities of the newly established leadership team to deliver the announced strategy.”

It said the board had “carefully considered the proposal with its advisers and consulted with Direct Line shareholders during the offer period” and had concluded “the proposal is at a value that it would be minded to recommend to Direct Line shareholders” should there be “a firm intention to make an offer”.

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If combined the merged group would have about a fifth of the motor insurance market.

Working together as one entity could deliver “significant synergies” allowing the firms to cooperate and generate more value together than separately, a joint statement from the insurers said.

The offer is only a proposal at present and the statement said there can be “no certainty” that any firm offer will be made.

Aviva has until Christmas Day to either announce a firm intention to make an offer or that it won’t be making one at all.

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Direct Line’s stock soared 40% due to the takeover interest after the first Aviva rebuff.

Having suffered in the motor insurance sphere Direct Line fended off a £3.17bn takeover attempt by Belgian rival Ageas earlier this year.

It’s experienced rising claim costs, and stiff competition, largely from online-only players with smaller cost bases.

Earlier this month Direct Line revealed 550 job losses as part of a “series of initiatives” designed to slash £50m off its cost base.