A year after the insurance industry got walloped by natural catastrophes, risk exposure took center stage in 2006. Hurricane Katrina demonstrated that many carriers did not adequately predict their levels of exposure.

Hurricanes are not the only form of natural catastrophe faced by insurers. The U.S. insurance marketplace is routinely dealing with substantial insured losses caused by floods, tornadoes, wildfires, mudslides, snowstorms and anything else Mother Nature throws our way.

These disasters do not just wipe out roads and knock out power to your home. They can also wreak havoc on your insurance company.

Poe Financial Group

and

Vesta Insurance Group

are two examples of insurance groups that failed in 2006 as a result of incurring large losses due to hurricane damage in the Southeast.

Vanguard Fire & Casualty

, a Florida-based property and casualty insurance company, was ordered into liquidation effective March 26 as a result of not having enough capital to meet its current and future liabilities as determined by the Department of Financial Services in Florida.

The rest of the industry survived surprisingly well as rising premium rates continued to fuel profitability and help primary insurers build up capital levels. Catastrophe losses were also lower than predictions called for, which was another positive for the industry.

Offsetting these strengths were the higher costs of reinsurance coverage as well as primary carriers being forced to increase retentions, thus increasing their exposure should they sustain losses. This means that more primary carriers are exposed to catastrophe losses now.

These are all reasons to insure your home with a financially strong company. Our rating methodology takes into account many factors, including an insurer's level of capitalization, profitability trends, geographic diversifications, adequacy of its loss reserves, concentration of business and many other factors.

The top three homeowners' insurance companies on our list continue to be

United Services Automobile Association

TheStreet Recommends

,

USAA Casualty Ins. Company

and the

Interinsurance Exchange of the Automobile Club

. All three earned an A+ rating -- TheStreet.com Ratings' highest grade.

The chart below shows the distribution of homeowners' insurance companies on the basis of how they are rated. Ratings are based on statistics for the fourth quarter of 2006, the latest available data. You can see that 35.8% of our homeowners universe are either rated A (Excellent) or B (Good).

Rating Distribution of Homeowners Insurers

Click here for larger image.

Source: TheStreet.com Ratings

Compare this with the overall property and casualty insurance industry, which has only 23.3% of insurers in the top-tier categories, and you'll see that homeowners' insurers are financially stronger than the industry as a whole.

Why is this? The highest-rated insurers in this group, those in the A-rated category, are well-diversified by line of business. These companies are also very well-capitalized and consistently profitable. Many on the list also share a mutual form of ownership in which the company is owned by the policyholders as opposed to the stockholders.

Mutuals have historically been run to build financial strength and offer reasonably priced products as opposed to stock companies, which are established to benefit shareholders in the form of higher stock prices and/or dividends.

The nation's 10 strongest home insurers are below. Many write business in multiple states and may write in yours. Contact them directly or through the state insurance department to check them out. The ratings section of our Web site can also help you locate a particular carrier.

Peter Brink is a senior financial analyst for TheStreet.com Ratings. In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

Previous to joining TSC, Brink was an executive underwriter for The Hartford where he underwrote professional liability products with a concentration on the financial services sector. Prior to The Hartford, he was an assistant vice president at ACE Capital Re Inc. where he promoted ACE reinsurance products to the domestic U.S. Life Insurance Sector. His analytical skills were honed through prior analytical positions held at Standard & Poor's where he focused on the Insurance Sector. He has a bachelor's degree in banking and finance from Hofstra University.