AM Best’s latest report shows that U.S. property and casualty (P&C) insurance companies’ return on equity reached a decade-high 14.97% in 2025, while the cost of equity remained relatively stable at 8.18%.
AM Best explains that while property and casualty insurers faced challenges at the start of the year, with California wildfires causing widespread damage in January, a relatively mild hurricane season has helped ease underwriting loss pressures for the remainder of the year.
Data from the rating agency showed that property and casualty insurance companies’ median return on capital continued a three-year upward trend, reaching a new high of 12.41% in 2025.
AM Best industry analyst Helen Andersen added: “Significant rate increases, particularly in homeowners and personal auto lines, have boosted results for property and casualty insurers, reversing a trend of the past two years that had seen underwriting losses turn into sharp underwriting gains.”
AM Best noted elsewhere in the report that over the past 15 years, health insurers have consistently exceeded their cost of capital by healthy margins.
“The sector’s median return on capital has declined steadily since 2020 but remains approximately 1.3% above the median weighted average cost of capital,” the rating agency said.
AM Best continued, “Returns for health insurance companies have been steadily declining since the pandemic due to higher claims and rising medical and pharmaceutical costs, particularly for specialty drugs such as GLP-1.”
Meanwhile, AM Best notes that in the life and annuity (L&A) space, high interest rates throughout 2024 delivered exceptional returns, but as rates begin to fall in 2025, slowing new money yields weigh on returns.
The ratings agency concluded: “The relationship between interest rates and L/A insurer returns is clear when looking at U.S. Treasury yields. L/A insurers’ median return on capital employed is 8.36%, just below the weighted average cost of capital target of 8.43%.”
“Similarly, life insurance companies’ median return on equity will fall from a record high of 15.96% in 2024 to 11.71% in 2025.
“As in the P/C and health insurance sectors, L/A insurers, despite the increase, still exceeded the cost of equity. However, due to the increased sensitivity of life insurance companies to interest rate changes, margins were much narrower, only 1.26% above the cost of equity.”
