A new AM Best report has revealed that the return-on-equity for U.S. property & casualty (P&C) insurers reached a decade high level of 14.97% in 2025, while the cost of equity held relatively steady at 8.18%.
Despite early-year challenges for P&C insurers, with the California wildfires causing extensive damage in January, a relatively benign hurricane season helped ease pressure on underwriting losses for the remainder of the year, AM Best explained.
According to the rating agency, the median return on capital employed for P&C insurers continued its upward three-year trend, reaching a new high of 12.41% in 2025.
Helen Andersen, industry analyst, AM Best, added, “Significant rate increases, especially in the homeowners and personal auto lines, have boosted the performance of P&C insurers, reversing a trend of underwriting losses into significant underwriting gains for the past two years.”
Elsewhere in the report, AM Best noted that health insurers have consistently exceeded their cost of capital by comfortable margins over the past 15 years.
“The median return on capital employed for this segment has steadily decreased since 2020 but still surpassed the median weighted average cost of capital by about 1.3%,” the rating agency said.
AM Best continued, “Health insurers’ returns have been steadily declining since the pandemic, due to more significant claims, as well as rising medical and pharmaceutical costs—especially specialty drugs, such as GLP-1s.”
Meanwhile, AM Best noted that in the life & annuity (L&A) segment, high interest rates throughout 2024 drove exceptional returns, but as rates began to decline in 2025, slowing new money yields weighed on returns.
The rating agency concluded, “The relationship between interest rates and L/A insurers’ returns is evident when viewed alongside the yield of U.S. Treasury bonds. L/A insurers’ median return on capital employed level of 8.36% narrowly missed the weighted average cost of capital target of 8.43%.
“Similarly, the median return on equity for life insurers fell to 11.71% in 2025, down from a record high of 15.96% in 2024.
“Like the P/C and health segments, L/A insurers exceeded the cost of equity despite its increase. However, the margin was much narrower, only 1.26% over the cost of equity, due to life insurers’ increased susceptibility to changes in interest rates.”
