New regulations and an influx of alternative capital will spur more mergers and acquisitions in the insurance industry, Swiss Re AG said.

“We expect to continue to see a certain shakeout in the sector as companies join together in search of revenue and cost synergies,” said Kurt Karl, the Zurich-based reinsurer’s chief economist, in a report Tuesday. “Some firms do not have the scale or the breadth of services to differentiate their offering from more commoditized reinsurance capacity.”

While there’s been an “upswing in M&A activity in insurance,” the pace remains well below levels prior to the financial crisis, said Swiss Re, the world’s second-biggest reinsurer. There were 489 deals completed globally in 2014, compared with 674 in 2007, the firm said.

The recent pickup includes sales of closed blocks of business and runoff operations, as well as transactions among specialty insurers and reinsurers “as incumbent firms respond to heightened competitive pressures,” Swiss Re said.

The introduction of rules such as Solvency II, which set stricter capital standards, are encouraging some firms to seek efficiencies or economies of scale, Swiss Re said. At the same time, hedge funds and pension funds in search of higher investment returns are competing with traditional reinsurers, hurting prices.

PartnerRe, Exor

Tougher competition and falling prices have spurred dealmaking across the industry. Bermuda-based reinsurer PartnerRe Ltd. is at the center of a takeover battle: it rejected an unsolicited $6.4 billion takeover offer from Italy’s Exor SpA on May 4, opting to stick with merger partner Axis Capital Holdings Ltd.

Exor, the investment fund controlled by Italy’s Agnelli family and known for its stake in carmaker Fiat Chrysler Automobiles NV, doesn’t have significant reinsurance operations.

In March, Endurance Specialty Holdings Ltd. announced the purchase of Montpelier Re Holdings Ltd. for about $1.83 billion in cash and stock. In February, Brit Plc said it was selling itself to Fairfax Financial Holdings Ltd. A month earlier, XL Group Plc agreed to acquire Catlin Group Ltd.