NEW YORK (TheStreet) -- With insurance company ACE Ltd. (ACErecently acquiring Chubb Corp. (CB) for more than $28 billion (making it one of the largest companies in the industry), and insurer Centene Corp. (CNC) acquiring Health Net Inc. (HNTfor $6.3 billion, we decided to check Quant Ratings for other property and casualty insurance companies to buy.

Companies in this sub-sector insure against loss to property due to weather events ("acts of God") or man-made disasters and accidents. It is vital to individuals who own property and entities that operate businesses.

The insurance industry contributes 4.5% of GDP, of which 74% is provided by insurance carriers that underwrite insurance (take on risk) 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 price increases (mainly premiums) have grown less than inflation, which is an indication that the business is very competitive.

Property and casualty is 55% of the insurance business and life and health insurance is 45%. The industry benefits from the tax treatment of claims, which are deducted from taxable income when filed, not when paid.

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 property and casualty insurance companies made the list. And when you're done, be sure to read about which volatile aerospace and defense stocks to buy now. Year-to-date returns are based on July 2, 2015, closing prices. The highest-rated stock appears last.

THG ChartTHG data by YCharts
3. Hanover Insurance Group, Inc. (THG)

Rating: Buy, A+
Market Cap: $3.3 billion
Year-to-date return: 5.8%

The Hanover Insurance Group, Inc., through its subsidiaries, provides various property and casualty insurance products and services in the United States and internationally. It operates through four segments: Commercial Lines, Personal Lines, Chaucer, and Other.

"We rate HANOVER INSURANCE GROUP INC (THG) 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, attractive valuation levels, good cash flow from operations and increase in net income. 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:

  • The revenue growth came in higher than the industry average of 9.5%. Since the same quarter one year prior, revenues slightly increased by 4.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
  • Although THG's debt-to-equity ratio of 0.29 is very low, it is currently higher than that of the industry average.
  • Net operating cash flow has increased to $84.20 million or 33.86% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 21.94%.
  • The net income growth 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 increased by 0.5% when compared to the same quarter one year prior, going from $54.60 million to $54.90 million.
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