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AM Best says reinsurance returns keep beating capital costs
AM Best said the weighted average cost of capital rose to 8.23% in 2025 from 7.67% in 2024, while median ROE reached 16.3% in 2025.
Reinsurers have continued to generate returns that exceed their capital costs, according to a new report from AM Best that points to maturing partnerships with alternative capital providers and stronger underwriting performance.
AM Best said the industry’s weighted average cost of capital increased to 8.23% in 2025 from 7.67% in 2024, then rose further in the first quarter of 2026 to 8.63%. It also cited repricing and de-risking of reinsurance portfolios as drivers of returns over the past three years.
The agency said most major reinsurance firms posted exceptional results in 2025, with a median return on equity of 16.3%, only slightly below the 2023 record levels. AM Best added that while natural catastrophe losses have risen in recent years, 2025 finished with lower-than-expected losses.
AM Best said underwriting discipline is likely to remain important as the reinsurance market softens, accelerated by higher capital and capacity. It also noted that terms and conditions implemented after 2023 renewals have been durable, even as rates remain up almost 40% from 2017.
For context, AM Best referenced Guy Carpenter’s Global Property Catastrophe Rate-On-Line Index, which it said fell 12% at the January 1 renewals for global property catastrophe reinsurers and then declined another 16% after mid-year renewals, describing the mid-year drop as the steepest in decades. Despite the cooling trend, AM Best said the returns seen in 2025 are unlikely to be repeated.