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Top-Rated Homeowners Insurance Companies

Melissa Gannon

Until Hurricane Andrew hit south Florida in 1992, causing the largest insured losses of any single natural disaster up to that point, most of us lived in blissful ignorance about our insurance coverage.

Those days are long gone, thanks to some other unwelcome visitors named Katrina, Wilma, Rita, Charley, Jean and Frances. Not that the Southeast has a monopoly on natural disasters. At any given time, somewhere in the U.S. we are threatened by snowstorms, mudslides, floods, tornadoes, wildfires and other mood swings of Mother Nature.

But these disasters are not just capable of wiping out roads and homes. They can wipe out your insurance provider too. In 2006, Poe Financial Group went under as a direct result of hurricanes Frances and Jean in Florida, and Vesta Insurance Group failed as a direct result of Hurricane Katrina.

The rest of the industry survived surprisingly well, in part because years of strong profitability had allowed them to build up strong capital reserves. Just as important, the increased use of reinsurance, or insurance from other insurance companies, over the past decade helped them move some of the risk off their balance sheets. However, the cost of reinsurance has risen sharply in the wake of the 2005 hurricane season. That means insurers are more exposed to catastrophic losses now.

All the more reason to sign up with a strong company. Our ratings are based on many factors, including an insurer's level of capitalization, the trend in its profitability, the adequancy of its loss reserves and concentration of its business geographically and along business lines.

The top three insurance providers on the list were the United Services Automobile Association, USAA Casualty Insurance and Interinsurance Exchange of the Automobile Club. All three earned an A-plus rating.

The chart below shows the distribution of homeowners insurance companies on the basis of how they are rated. You can see that 38.5% of insurers are rated either an A (excellent) or B (good). Compare this with the overall property and casualty insurance industry, which has only 28.5% of insurers in the top-tier categories, and you see that homeowners insurers are slightly stronger than the industry as a whole.

A = Excellent; B = Good; C = Fair; D = Weak; E = Very Weak

Why is this? Well, the highest-rated insurers in this group -- those with an A-plus, A, or A-minus rating -- are well diversified with homeowners premium volume making up 50% or less of their total written premium. These companies are well capitalized and consistently profitable. They all rely on some level of reinsurance with some even being reinsurers themselves in addition to writing premium directly.

The nation's 10 strongest homeowners insurers are below. Although based in a small number of states, they write business in multiple states and may write in yours. Contact them directly or through the state insurance department to check them out.