NEW YORK—Validus Holdings Ltd. is looking to again play the spoiler after making an unsolicited bid for New York-based reinsurer Transatlantic Holdings Inc., which already was deep in acquisition talks with Allied World Assurance Co. Holdings A.G.

Bermuda-based reinsurer Validus' offer could spark a bidding war with Zug, Switzerland-based AWAC, experts say. When Validus announced its move last week, its offer was worth around $3.5 billion, compared with the $3.2 billion to which Transatlantic had agreed upon with AWAC.

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

Transatlantic said in a statement that its board is considering the offer. It also advised stockholders to not take action and await the board's recommendation.

Validus operates in the Bermuda and London markets, and Transatlantic in the United States, Europe and Asia. Meanwhile, Validus writes mostly property catastrophe reinsurance, while casualty reinsurance constituted 71% of Transatlantic's net premiums written in 2010.

The day after news of the bid hit, Validus' stock fell 9.1% to $28.02 per share, while Allied World's increased 0.9% to $57.23, and Transatlantic's rose 5.1% to $51.54, compared with the previous day's close.

Validus has a history of such moves, having crashed a proposed IPC Holdings Ltd. acquisition by Max Capital Group Ltd. in 2009, eventually becoming the winning bidder (see story, page 35).

Analysts had mixed reactions to a Validus-Transatlantic deal.

“We had looked at Validus as being really in the absolute sweet spot of the market right now,” said Michael G. Paisan, a New York-based analyst for financial services firm Stifel, Nicolaus & Co. Inc.

Much of Validus' business is in areas that have had rate increases in recent months, and by entering into the casualty reinsurance market, Validus adds significantly more uncertainty into its business mix, according to Mr. Paisan.

“We think this deal will dilute that (advantage) at least temporarily for the next year or two,” said Mr. Paisan, who downgraded his recommendation on Validus to hold from buy.

Other analysts' opinions differed.

“Certainly, whichever company ends up with Transatlantic will be quite large” among Bermuda reinsurers, said James Eck, vp-senior credit officer at Moody's in New York. “They'd benefit from scale.”

As its 63-year-old President and CEO Robert F. Orlich approaches retirement, Transatlantic's senior management has had early stage discussions about possible business combination deals with several insurance and reinsurance companies since June 2009, according to a July 7 regulatory filing with the Securities and Exchange Commission.

Transatlantic and AWAC have close ties. Transatlantic was the former reinsurance affiliate of New York insurer American International Group Inc. AIG and other insurers, including Chubb Corp., started AWAC after the Sept. 11, 2001, terrorist attacks.

“The way Validus structured their deal is very interesting because they obviously haven't had the same access to Transatlantic's books as Allied World,” said an investor who has more than 4% of his portfolio in Transatlantic, but does not own a large enough position for his view to be representative of all shareholders. “It puts the competition at a disadvantage while pressuring Transatlantic to open their books and talk.”

The shareholder said he would wait and see if there are any other bids for Transatlantic before making a decision.

“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 (and made a counterbid), but who knows how far they'll go?”

Validus offered to buy Transatlantic for $55.95 per share on Tuesday. But after the market's response on Wednesday, Validus' offer to Transatlantic shareholders was only $51.61 per share vs. AWAC's $50.36 per share, according to a report that Morgan Stanley released Thursday. “At current levels we would expect (Transatlantic) to embrace (AWAC), given the friendly nature of the proposed agreement,” analysts said in a statement.

“There's a lot still pending,” said John Andre, group vp in the property/casualty rating area of the rating agency A.M. Best Co. Inc. in Oldwick, N.J. “We see both Validus and AWAC as strong partners for Transatlantic, however it works out.”

AWAC 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 AWAC declined to comment, and Validus did not respond to a request for comment.