Mergers and acquisitions are likely to continue in the global insurance and reinsurance sector as companies continue to strive for growth and challenging markets persist.

A recent report from S&P Global Inc., “You Must Be This Tall to Ride: Global Property Casualty Re/Insurers Seek Scale Through M&A to Remain Relevant,” suggests that pricing, competition and capacity constitute significant headwinds for insurers and reinsurers.

Evan Greenberg, chief executive at Chubb Ltd., said in a recent Financial Times interview that he would not rule out further acquisitions for his company, saying “stay tuned” and calling current market conditions “unsustainable.”

During remarks on American International Group Inc.’s second-quarter earnings call, industry veteran Brian Duperreault, newly installed as CEO of AIG, said the company would consider acquisitions that are “strategically complementary.”

The extended soft market has made mergers and acquisitions “a viable option to help ensure they remain relevant,” for insurers and reinsurers, S&P said in its report.

“The prolonged soft pricing environment — especially within the global property casualty reinsurance sector — multiple successive periods of insured catastrophe losses below historical averages, limited organic growth, and heightened competition in the market have been catalysts for recent M&A deals,” S&P said. “An abundance of low-cost capital has further driven transaction volume, with global reinsurance capital reaching a record $605 billion as of March 31, 2017, of which $86 billion is alternative capital, also an all-time high.”

The problem may be more acute for reinsurers, one analyst said.

“I think in reinsurance there’s benefits to scale and size and having more capital, and that’s been probably the most consolidating market over the last few years,” Jim Auden, managing director at Fitch Ratings Inc. in Chicago, said Friday.

The bar to remaining competitive has risen to several times previous levels.

“In reinsurance, I think over time the level of minimum capital to really attract business has gone up, and I think that still continues,” said Mr. Auden, adding that level may now be around $3 billion, when “it wasn’t long ago that it was $500 million or $1 billion.”

Scale and reach could prove an advantage in business.

“As many primary companies are consolidating their reinsurance purchases, reinsurers with a large global footprint and diversified product offerings will have a competitive advantage relative to smaller reinsurers,” New York-based S&P credit analyst Taoufik Gharib said Monday.

Despite the pressures, the pace of mergers and acquisitions has slowed recently, according to Clyde & Co.’s midyear Growth Report update. There were 170 deals in the first six months of 2017 compared with 186 in the preceding six months and a recent high of 225 in the first half of 2015, the Clyde report said.

Higher valuations may be playing a role in the deceleration, according to S&P.

“Because market valuations are currently toward the high end of their historical range, we expect deals to be partly inhibited,” Mr. Gharib said.

In a difficult market with few avenues for growth, mergers and acquisitions are a viable strategy for capital deployment.

“Re/insurers struggling to grow their top lines and maintain profitability in this environment may view M&A as a viable alternative,” Mr. Gharib said.

“Mostly, it’s a function of companies are generating capital and there aren’t a lot of growth opportunities to redeploy that capital in the market,” said Mr. Auden. “So, how do you put that capital to work? Acquisitions are a next avenue.”

Scale, however, may not be absolutely necessary for survival, depending on one’s business.

“A specialty insurer that’s smaller and has a solid profitable niche has a greater potential to remain independent in the current environment,” said Mr. Auden.