U.S. property/casualty (P/C) insurers recorded their highest return on equity in a decade in 2025, according to a new report from AM Best. The segment reached a return on equity of 14.97%, while the cost of equity remained relatively stable at 8.18%.
The year began with significant losses from the California wildfires in January. However, a relatively mild hurricane season later in the year helped reduce additional underwriting pressure. As a result, the median return on capital employed for P/C insurers continued its three-year upward trend, reaching a new high of 12.41% in 2025.
Rate Increases Strengthen P/C Insurer Performance
AM Best said rate increases played a major role in improving results for P/C insurers, particularly in the homeowners and personal auto lines.
“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.
The improved underwriting performance helped P/C insurers maintain returns above their cost of capital despite earlier-year catastrophe losses.
Health Insurers Continue To Exceed Cost of Capital
According to the report, health insurers have consistently outperformed their cost of capital during the past 15 years. Although returns have declined since 2020, the segment still exceeded its median weighted average cost of capital by approximately 1.3%.
AM Best noted that health insurers have experienced declining returns since the pandemic, driven by higher claims activity and rising medical and pharmaceutical costs. Specialty drugs, including GLP-1 medications, also contributed to rising expenses.
Even with those pressures, the health insurance segment maintained returns above its cost of capital.
Interest Rates Affect Life and Annuity Insurer Returns
For the life and annuity (L/A) segment, elevated interest rates throughout 2024 supported strong returns. However, as interest rates declined in 2025, new-money yields slowed, and returns decreased.
AM Best stated that the relationship between interest rates and L/A insurer returns can be seen alongside the yield of U.S. Treasury bonds. The segment’s median return on capital employed reached 8.36% in 2025, narrowly missing the weighted average cost of capital target of 8.43%.
At the same time, the median return on equity for life insurers declined to 11.71% in 2025 from a record high of 15.96% in 2024.
Despite the decline, life and annuity insurers still exceeded their cost of equity. However, the margin was narrower than in other insurance segments. AM Best reported that the segment’s cost of equity exceeded the cost of equity by 1.26%, reflecting life insurers’ greater sensitivity to interest-rate changes.
Click here to access a copy of this special report, P/C and Health Insurers Exceed Cost of Capital; Life Insurers Narrowly Miss.
AM Best is a global credit rating agency, news publisher, and data analytics provider specializing 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.
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