NEW YORK—The merger of reinsurer Transatlantic Holdings Inc. with Allied World Assurance Co. was derailed last week as shareholders were urged to vote against the deal, but it remains unclear whether Transatlantic will remain independent or be swallowed up by a competitor.

Unsolicited bids for the New York-based reinsurer from Validus Holdings Ltd. and Berkshire Hathaway Inc.'s National Indemnity Co. may still be an option, but Transatlantic appeared to indicate that it thought those offers too low.

In addition to weighing the offers, though, Transatlantic faces more pressure from Validus after the Bermuda-based reinsurer filed papers to replace the Transatlantic board last week.

The merger with Allied World was aborted last Friday, three months after it was announced, after several investor advisory firms recommended that Transatlantic shareholders vote against the deal, citing the competing bids.

Transatlantic then canceled a Sept. 20 shareholder meeting about the proposal and announced the merger agreement was terminated.

Allied World indicated that it does not plan to adjust the original merger terms. “Although disappointed we were unable to complete the proposed merger with Transatlantic, Allied World's core business strategy remains intact,” CEO Scott Carmilani said in a statement Friday.

But the Zug, Switzerland-based insurer and reinsurer gets a $35.0 million termination fee, including $13.3 million in expense reimbursement, and another $66.7 million if Transatlantic does another deal within a year.

Transatlantic's executive vp and chief operating officer, Michael Sapnar, is appointed president, effective immediately, and CEO effective Jan. 1, 2012, the company announced last week. He succeeds Robert Orlich, who retires as CEO in January but remains on the board. Meanwhile, Transatlantic announced plans to buy back more stock.

What will ultimately happen to Transatlantic is unclear.

“As of now, Transatlantic is effectively a stand-alone. It doesn't have a deal with anyone, although it's possible they'll discuss offers with different parties,” said Tracy Dolin-Benguigui, an associate director at Standard & Poor's Corp. in New York.

Transatlantic remains willing to engage in discussions with any seriously interested party, according to a statement it issued Friday. But National Indemnity's $52-per-share bid represents only 77% of Transatlantic's stated June 30 book value, the company said. National Indemnity has said that it will not increase its offer, and no talks are scheduled between the two companies, Transatlantic said.

Meanwhile Transatlantic said Validus' offer continues to be “inadequate,” for reasons ranging from insufficient valuation to “cultural incompatibility.”

In July, Validus offered 1.5564 of its shares and $8.00 per share in cash, and also said it would add $500 million to Transatlantic's reserves. But the Bermuda reinsurer based its bid on public information, and Allied World's agreement with Transatlantic prevented Validus from doing due diligence, experts say.

“We welcome the opportunity to enter into discussions without any restrictive preconditions and engage in mutual due diligence,” a Validus spokesman said Friday.

“Obviously, once they get the insider's look (into Transatlantic) and scrub the numbers, it could be that the reserves are fine,” said Michael G. Paisan, a New York-based analyst for financial services firm Stifel Nicolaus & Co. Inc. Depending on what the Bermuda reinsurer discovers, it could offer to allocate less money for the reserves and pay more to Transatlantic shareholders, Mr. Paisan said.

Transatlantic said it's planning a $600 million share buyback program, adding $455 million to its existing one. The company plans to do half before the end of 2011 and the rest in 2012.

Davis Selected Advisers L.P. said it “applauds Transatlantic's efforts to create value for shareholders with an intelligent capital management plan while at the same time remaining open to other strategic alternatives,” according to Transatlantic's statement Friday. The Tucson, Ariz.-based investment management firm, which owns a nearly 24% stake in Transatlantic, had objected in June to Transatlantic's deal with Allied World.

Meanwhile Transatlantic continues with initiatives such as completing a licensing process that would provide the reinsurer with access to U.S. primary insurance business. Transatlantic might have benefited from joining its pure reinsurance operation with Allied World's predominantly insurance business, analysts say.

“It sounds like (Transatlantic is) continuing to do what they've been doing,” said James Eck, vp-senior credit officer at Moody's Investors Service Inc. in New York.

Berkshire did not respond to a request for an interview.

Earlier last week, Validus said it was filing papers with the U.S. Securities and Exchange Commission in an effort to replace Transatlantic's board with three independent directors.

Validus had proposed the same three people replace members on IPC Holdings Ltd.'s board, after the property/catastrophe reinsurer launched a successful unsolicited bid for the reinsurer in 2009.