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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AHL ChartAHL data by YCharts
2. Aspen Insurance Holdings Limited (AHL
Rating: Buy, A+
Market Cap: $3 billion
Year-to-date return: 12.2%

Aspen Insurance Holdings Limited, through its subsidiaries, engages in insurance and reinsurance businesses worldwide. Its Insurance segment offers property and casualty insurance, including U.S. and the United Kingdom commercial property and construction business, commercial liability, U.S.

"We rate ASPEN INSURANCE HOLDINGS LTD (AHL) 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, solid stock price performance and increase in net income. We feel its strengths outweigh the fact that the company has had somewhat disappointing return on equity."

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 7.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • AHL's debt-to-equity ratio is very low at 0.18 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. 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 net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Insurance industry average. The net income increased by 6.4% when compared to the same quarter one year prior, going from $120.30 million to $128.00 million.
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ACGL ChartACGL data by YCharts
1. Arch Capital Group Ltd. (ACGL)
Rating: Buy, A+
Market Cap: $8.5 billion
Year-to-date return: 15.7%

Arch Capital Group Ltd., through its subsidiaries, provides property, casualty, and mortgage insurance and reinsurance products worldwide.

"We rate ARCH CAPITAL GROUP LTD (ACGL) 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, notable return on equity, solid stock price performance and compelling growth in net income. We feel its strengths outweigh the fact that the company shows weak operating cash flow."

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 rose by 14.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • ACGL's debt-to-equity ratio is very low at 0.14 and is currently below that of the industry average, implying that there has been very successful management of debt levels.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Insurance industry and the overall market, ARCH CAPITAL GROUP LTD's return on equity exceeds that of both the industry average and the S&P 500.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. 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 net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Insurance industry. The net income increased by 55.3% when compared to the same quarter one year prior, rising from $182.50 million to $283.34 million.
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