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%, according to a new AM Best report.

Last year started with an early challenge for P/C insurers as the California wildfires caused extensive damage in January. Fortunately, a relatively benign hurricane season alleviated potential pressure on underwriting losses over the balance of the year. 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.

“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,” said Helen Andersen, industry analyst, AM Best.

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%. 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.

For the life/annuity (L/A) segment, high interest rates throughout 2024 drove exceptional returns. As interest rates began to decline in 2025, new money yields slowed, bringing down returns. 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.

To access a copy of this special report, “P/C and Health Insurers Exceed Cost of Capital; Life Insurers Narrowly Miss,” please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=364764.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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