A.M. Best indices: health insurance stocks led the way in 2006.

Stories about rising health-care costs may have dominated the headlines in 2005, but they appear not to have scared investors off of the health insurance sector, as stocks in the A.M. Best Health & HMO Index saw a whopping 41.96% rise from their position at year-end 2004.

Perhaps buoyed by the planned roll-out of Medicare's universal prescription-drug benefit programs, from which some health plans anticipate billions of dollars in new revenue, health insurance stocks outpaced all other sectors of the industry, including four of the top 10 slots among individual performers.

Humana Inc, Health Net Inc., Coventry Health Care Inc. and Aetna Inc.--all major players in the Medicare Part D program that launched Jan. 1--saw their shares improve more than 50% in 2005, with Humana up 82.99% to post the third-largest percentage increase among all insurance stocks.

At the opposite end of the performance scale were property/casualty stocks, with many hampered by record losses from hurricanes Katrina, Rita, and Wilma. The Property/Casualty Index still saw gains on the whole, rising 7.07% from year-end 2004, but it contributed nine of the bottom 10 individual performers. Hit particularly hard was Montpelier Re Holdings Ltd., with shares down 50.85% on the year after suffering a third quarter that saw the company post a net loss of $875.1 million anda combined ratio--losses and expenses as a percentage of premiums--of 422.6.

However, some individual P/C companies managed to shine through. Among the brightest was medical-malpractice writer SCPIE Holdings Inc., which saw its shares more than double--up 109.26%, more than any other insurer--on vastly improved fundamentals, both at the company level and in the underlying medical-malpractice market.

The brokerage sector likewise saw more modest growth, up 9.31%, as many firms sought to completely remake their business models after New York state Attorney General Eliot Spitzer's probe of bid-rigging allegations at Marsh & McLennan Cos. In the wake of the Spitzer investigations, most of the largest brokers announced they would henceforth eschew contingent commissions and placement service fees, while several sold off their interests in ancillary operations--such as wholesale brokerages, reinsurance intermediaries, and underwriters--that were criticized as presenting the potential for monopolistic "tying" arrangements.

The life sector straddled a middle ground between the "go-go" performance of health insurers and the more modest returns seen by property insurers. On the year, A.M. Best's Life Index rose a healthy 22.17%, combining with the health stocks to push the aggregate Life/Health & HMO Index up 31.89%.