NEW YORK—Transatlantic Holdings Inc. said Wednesday that its board is considering an unsolicited offer from Validus Holdings Ltd. that would be 12.1% more than the reinsurer’s earlier agreement to merge with Allied World Assurance Co. Holdings A.G. for $3.2 billion.

The companies want to purchase the New York-based former reinsurance affiliate of American International Group Inc.

Transatlantic’s board “will carefully consider and evaluate the Validus proposal in due course and will inform Transatlantic stockholders of its position,” the company said in a statement.

Validus said it would buy Transatlantic, which has 62.48 million shares outstanding, for $55.95 per share. Transatlantic investors would get 1.5564 Validus voting common shares and $8 in cash for each share they hold. The deal also is structured to be tax-free to Transatlantic stockholders receiving the Validus shares, Bermuda-based Validus said.

“While Validus prefers to work cooperatively with the Transatlantic board of directors to complete a consensual transaction, it is prepared to take the proposal directly to Transatlantic stockholders if necessary,” Validus said in a U.S. Securities and Exchange Commission filing Wednesday.

Validus has business positions in Bermuda and London, while Transatlantic does business in the United States, Europe and Asia, Validus said in the statement. Validus does business in areas such as reinsuring property risk, while Transatlantic is more involved in product lines such as medical malpractice, according to analysts.

Looking at diversification

“We will create a broadly diversified global reinsurance leader,” Validus Chairman and CEO Ed Noonan said Tuesday in a statement.

Validus’ bid “speaks for its desire to get bigger and more diversified,” said Laline Carvalho, director and sector specialist in reinsurance at Standard & Poor’s Corp. in New York. “It’s not necessarily our opinion, but it seems to be the opinion of some management teams that diversification–global diversification and not just local—is desirable for helping companies offset their volatility.”

Analysts said earlier that Transatlantic's planned merger with Zug, Switzerland-based Allied World would take their complementary operations to create a stronger combined entity.

“Clearly, on the surface, Validus is a higher bid, but the question is where does the bidding stop?” said Paul Howard, director of research at Solstice Investment Research L.L.C. in Glastonbury, Conn. “I wouldn’t be surprised if Allied World came back (with a higher bid), but who knows how far they’ll go?”

Allied World said in a statement Wednesday that it will hold an extraordinary general meeting of its shareholders to consider and vote on proposals related to the Transatlantic merger.

Transatlantic and Allied World both declined comment.

Goldman Sachs & Co. and Moelis & Co. L.L.C. are financial advisers and Gibson, Dunn & Crutcher L.L.P. is legal counsel to Transatlantic.