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AM Best says reinsurers topped cost of capital in 2025 amid softer markets
Weighted average cost of capital rose to 8.23% in 2025, while median return on equity hit 16.3%, and the figure increased again to 8.63% in the first quarter of 2026.
AM Best said reinsurers continued to earn returns above their cost of capital in 2025, extending a trend seen in the prior two years, even as conditions in reinsurance markets have softened. The credit rating agency linked the outperformance to stronger underwriting results after changes to pricing and reductions in the level of risk held in reinsurance portfolios.
AM Best reported that the global reinsurance sector’s weighted average cost of capital increased to 8.23% in 2025 from 7.67% in 2024. The metric rose further during the first quarter of 2026 to 8.63%, reflecting how capital costs moved up even as reinsurers maintained performance.
The company attributed part of the underwriting resilience to reinsurers’ programme-structure changes, including tightened terms and conditions and higher attachment points, which AM Best said have remained durable despite weaker market conditions. AM Best added that these steps helped reinsurers weather increased frequency and severity of secondary perils.
AM Best said reinsurers recorded particularly strong results in 2025, with median return on equity reaching 16.3%, only slightly below the record level from 2023. It also said the cost of equity climbed to 9.6% in 2025 for a fourth consecutive annual increase, pushing up overall cost of capital despite lower interest rates, and emphasized that maintaining returns at or above the cost of capital will require ongoing strategy adjustments as market conditions change.