No other lines of insurance sold by Farmers is being affected.

"It's really, really regrettable," said Mary Flynn, spokeswoman for Farmers. "However, the [Texas Department of Insurance] left us no choice."

Mark Hanna, a spokesman for the department, said Farmers obtained a temporary restraining order against the department barring it from discussing its findings.

In a news release dated Sept. 23, prior to Farmers announcement, TDI said it had made a settlement offer to the carrier to resolve compliance issues.

According to the release, in August the department found several instances where the company did not properly disclose rating information to consumers. TDI also claimed that the company made an excessive profit and did not provide proper discounts to consumers.

Farmers said its rate increases reflect dramatic losses in the homeowners market of $1.3 billion over the last two years, including $435 million in the first two quarters of this year. The company said it pays out approximately $2.50 in claims for each $1 of homeowners premium it collects.

Ms. Flynn said the department, under its cease and desist order, wanted Farmers to refund $150 million to consumers and roll back its increases to last year's levels, which she said are the average rates of the market. She said the company had to take the action it did at this time or face a fine of $25,000 per customer.

Farmers, the second largest provider of homeowners insurance in the state, has 700,000 customer households, or about 20 percent of the market.

Ms. Flynn said the company would be dropping approximately 50,000 to 60,000 policyholders a month over the next year as the policy renewals come up.

Mr. Hanna said there is enough capacity in the state to absorb the non-renewals, but other insurers will have to "step up to the plate" to absorb the numbers.

Bill Roof, director of communications for the Austin, Texas-based Independent Insurance Agents of Texas, said the association has not taken a position on the issue. Their only concern is that the 700,000 customers not get stuck without insurance.

The National Association of Independent Insurers, based in Des Plaines, Ill., said it did not think Farmers' decision would result in "an immediate shortage of homeowners insurance in the state."

However, Don Hanson, southwestern regional manager for the association, went on to say that action needs to be taken by state government officials to avoid a crisis next year.

Farmers' distaste for insuring homes in the state was triggered after a jury in Travis County Texas awarded $32 million to a Texas homeowner who sued Farmers for mishandling a claim for water damage that lead to mold contamination. The verdict is on appeal.