Merger and acquisition activity appears poised to accelerate in 2018 despite healthy valuations as insurers pursue various growth strategies, analysts say.

Deals will also come as companies try to reinvent themselves for the digital age.

“Deal activity in 2017 contained signs of the M&A trends that we expect to see accelerate as more insurers seek to transform, using business acquisitions or disposals as elements of that transformation,” said consultancy Ernst & Young L.L.P. in a report called Global Insurance M&A Themes, 2018 Moving from Optimization to Transformation, issued Tuesday.

Acquisition prices are robust but not so high as to deter buyers.

“There is some level of anticipated consolidation in the valuations, but nothing prohibitive yet,” said Meyer Shields, Baltimore-based analyst with Keefe Bruyette & Woods Inc.

In January, American International Group Inc. bought Bermuda-based Validus Holdings Ltd. for $5.56 billion in cash, and on March 5, France’s Axa S.A. said it would buy Bermuda-based XL Group Ltd. for $15.3 billion in a blockbuster deal.

“The deals that have happened the past couple of years haven’t been sellers that are in trouble,” said James Auden, managing director at Fitch Ratings Inc. in Chicago. “These deals are more strategic in nature; you’re seeing premium in the purchase price.”

Growth is a driver behind the deals.

“The buyers want to grow strategically in a mature marker,” Mr. Auden said. “The sellers are getting favorable prices.”

Valuations vary in the insurance sector, with some mid-sized insurers and reinsurers trading at a premium.

Companies in the reinsurance and insurance sector are trading around book value on average, said Taoufik Gharib, senior director, North America insurance ratings, at U.S.-based S&P Global Ratings Inc., with the exception of a few Bermudian players including Hiscox Ltd., Arch Capital Group Ltd., RenaissanceRe Holdings Ltd. and Lancashire Holdings Ltd. “Those are the positive outliers in terms of trading at a premium relative to their year-end 2017 book value.”

Broadly, book value is calculated by subtracting liabilities and intangible assets, such as goodwill, from a company’s assets.

The early activity could signal further acquisitions.

“I think we’re going to see a lot more of it, and a lot of it will be in response to these deals,” Mr. Shields said.

Some acquirers will be seeking added reach and diversity.

“When companies consolidate, one of the things they are looking for is to be able to provide a greater array of product expertise to brokers and clients,” Mr. Shields said.

Companies must expand cautiously, however.

“There’s definitely benefits to diversification in insurance, but acquirers must have the expertise to operate in the various market segments,” or risk dragging down performance, Mr. Auden said.

“Scale is important to effectively compete in a consolidating market and potentially absorb some of the volatility we’ve seen in 2017 due to catastrophe losses,” Mr. Gharib said. “A global (insurance and reinsurance) company needs a large geographic footprint to access business and generate diversified and sustainable earnings.”

Mr. Shields says he remains skeptical of the absolute value of scale, “but if executives are worried about scale, they are going to pursue acquisitions that help them with it.”

The insurance sector’s move toward a more digital future will also spur some deal activity.

“We see a range of likely M&A activity forming part of the overall transformation of the sector in the short-to-medium term,” Ernst & Young said in its report. “The question of ‘buy or build’ has become central to many insurance M&A decisions and will continue to underpin consolidation as well as targeted acquisition of capabilities.”

Insurers continue to invest into insurtech businesses, Ernst & Young said, partly in response to the ongoing question of buy or build, but increasingly as a way of accessing and operating in emerging “digital ecosystems.”