NEW YORK (TheStreet) -- Property and casualty companies insure against loss to property due to weather events or man-made disasters and accidents. It is a prudent investment for individuals and businesses who own property. The insurance industry contributes 4.5% of GDP, of which 74% is provided by insurance carriers that underwrite insurance, and 26% by insurance agencies that sell insurance to the public.

The insurance sector has grown faster than GDP in the last 17 years, and the premiums have grown less than inflation, which is an indication that the business is very competitive. Property and casualty insurance is 55% of the insurance business, and life and health insurance is the rest.

Famed investor Warren Buffett loves this business: "The collect-now, pay-later model leaves P/C companies holding large sums -- money we call 'float' -- that will eventually go to others. Meanwhile insurers get to invest this float for their benefit." Much of Berkshire Hathway's (BRK.A) portfolio is property and casualty insurance companies

The search for float is intensely competitive among insurers. To make things worse for the industry, the persistent low interest rates over the last six years have reduced the investment income from the float and lowered the profitability of the industry as a whole. Only firms that underwrite insurance profitably will prosper in this competitive industry.

So what are the best property and casualty insurance companies investors should be buying? Here are the top three, according to TheStreet Ratings, TheStreet's proprietary ratings tool.

TheStreet Ratings projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Check out which three property & casualty insurance companies made the list. And when you're done be sure to read about which online retail and e-commerce companies to buy now. Year-to-date returns are based on May 7, 2015 closing prices. The highest-rated stock appears last -- read more to see which one is No. 1.

ALL ChartALL data by YCharts
3. The Allstate Corporation (ALL)

Rating: Buy, A+
Market Cap: 27.7 billion
Year-to-date return: -3.6%

The Allstate Corporation, through its subsidiaries, engages in the property-liability insurance and life insurance businesses in the United States and Canada.

"We rate ALLSTATE CORP (ALL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, attractive valuation levels and good cash flow from operations. We feel its strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ALL's revenue growth has slightly outpaced the industry average of 3.1%. Since the same quarter one year prior, revenues slightly increased by 2.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Although ALL's debt-to-equity ratio of 0.23 is very low, it is currently higher than that of the industry average.
  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Insurance industry average. The net income increased by 12.8% when compared to the same quarter one year prior, going from $600.00 million to $677.00 million.
Must Read:  3 Best Life Insurance Companies to Add to Your Portfolio


TRV ChartTRV data by YCharts
2. The Travelers Companies, Inc. (TRV)
Rating: Buy, A+
Market Cap: $32.7 billion
Year-to-date return: -3%

The Travelers Companies, Inc., through its subsidiaries, provides a range of commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals in the Unites states and internationally.

"We rate TRAVELERS COS INC (TRV) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, solid stock price performance and attractive valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Although TRV's debt-to-equity ratio of 0.26 is very low, it is currently higher than that of the industry average.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.7%. Since the same quarter one year prior, revenues slightly dropped by 1.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • TRAVELERS COS INC's earnings per share declined by 13.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, TRAVELERS COS INC increased its bottom line by earning $10.70 versus $9.74 in the prior year. For the next year, the market is expecting a contraction of 12.6% in earnings ($9.35 versus $10.70).
Must Read:  3 Mid-Cap Restaurant Stocks to Add to Your Portfolio Right Now


ACE ChartACE data by YCharts
1. ACE Limited (ACE)
Rating: Buy, A+
Market Cap: $35.2 billion
Year-to-date return: -7.4% 

ACE Limited, through its subsidiaries, provides a range of property and casualty insurance and reinsurance products worldwide.

"We rate ACE LTD (ACE) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Although ACE's debt-to-equity ratio of 0.24 is very low, it is currently higher than that of the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.7%. Since the same quarter one year prior, revenues slightly dropped by 0.2%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • ACE LTD' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, ACE LTD reported lower earnings of $8.40 versus $10.92 in the prior year. This year, the market expects an improvement in earnings ($9.20 versus $8.40).
  • In its most recent trading session, ACE has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The change in net income from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Insurance industry average. The net income has decreased by 7.2% when compared to the same quarter one year ago, dropping from $734.00 million to $681.00 million.
Must Read:  3 Movies & Entertainment Companies to Add to Your Portfolio Right Now

If you liked this article you might like

Five-Day Winning Streak in Stocks Expected to Continue

Five-Day Winning Streak in Stocks Expected to Continue

Apple Stock Is Being Bought by Warren Buffett; Should You Buy It?

Apple Stock Is Being Bought by Warren Buffett; Should You Buy It?

One Thing About Apple That You Probably Didn't Realize

One Thing About Apple That You Probably Didn't Realize

Dow Jumps Over 300 Points, Posting Its Fifth Straight Day of Gains

Dow Jumps Over 300 Points, Posting Its Fifth Straight Day of Gains

One Indicator on Apple Has Me Confused

One Indicator on Apple Has Me Confused