NEW YORK—Advisory firm Institutional Shareholder Services Inc. has recommended that Transatlantic Holdings Inc. investors vote against a planned merger with Allied World Assurance Co. Holdings A.G., even though it separately said that Allied World investors should support such a deal.

After Zug, Switzerland-based insurer and reinsurer Allied World announced the plan in June, rivals Hamilton, Bermuda-based Validus Holdings Ltd. and Omaha, Neb.-based Berkshire Hathaway Inc.'s National Indemnity Co. unit made their own offers for Transatlantic. All three deals were valued at more than $3 billion when announced, but have fluctuated with stock market turbulence.

“The emergence of these competing bids has cast doubt on whether the deal with (Allied World) is truly the best economic option available to its shareholders,” ISS said in an analysis Friday, adding that “there is compelling reason to believe that for (Transatlantic) shareholders, there is better chance of maximizing the value of their investment by voting down the (Allied World) transaction.”

In a statement Monday, Transatlantic said it was disappointed with the ISS report and believes the propose deal would enable Transatlantic “to achieve our key strategic objectives, strengthen our franchise, offer our stockholders an exchange ratio that provided full and fair value, and better preserve our ability to return capital to stockholders while providing them with the ability to share in the long-term potential of the combined company.”

Allied World shareholders should support

Meanwhile, Allied World in a Monday statement noted that ISS has recommended that shareholders of Allied World vote in favor the proposed merger with Transatlantic. In the report, ISS noted that the current exchange ratio is an attractive valuation for Allied World and "approval of the merger agreement between the company and Transatlantic warrants support."

ISS noted that the two additional bids for Allied World suggest that the Swiss reinsurer would get the deal at an attractive valuation.

Regarding ISS' recommendation to Transatlantic shareholders, Allied World said ISS is asking them “to take the risk that a higher offer for Transatlantic will not emerge if the merger with Allied World is defeated.”

Allied World and Transatlantic shareholders are scheduled to vote on the deal Sept. 20.

“A vote against the Allied World takeover will send a strong message that the Transatlantic board of directors should terminate the inferior Allied World proposal and enter into discussions with Validus,” the Bermuda reinsurer's, chairman and CEO, Edward J. Noonan, said in a statement Monday.

Davis Selected Advisers L.P., which owns a nearly 24% stake in Transatlantic, already has objected to the Allied World proposal.