Also, all existing Farmers policyholders who renew their policies will receive an additional 15 percent off the already lowered rate. And finally, all policyholders will be offered increased water damage coverage, up to 50 percent of their policy limits, at no additional rate increase.

"Farmers policyholders will finally see the rate relief they deserve," Mr. Montemayor said.

But the deal stirred the ire of some consumer representatives.

Birny Birnbaum, director of the Center for Economic Justice in Austin, Texas, called on Gov. Rick Perry to replace Mr. Montemayor immediately in the wake of the deal.

"We are shocked that Mr. Montemayor let Farmers completely off the hook for the premium overcharges over the last 15 months," Mr. Birnbaum said. "Not one penny to consumers who paid hundreds of millions of dollars in excessive premiums."

In September of last year the TDI upheld its own order of rate reductions of 12 percent for State Farm, the number one homeowners writer, and 17.5 percent for Farmers, the number two writer.

The commissioner ordered the reductions last year under new authority granted by the State Legislature aimed at bringing stability to the homeowners market, which had been hit by rising prices as insurers stepped up rates, in part, to counter hefty judgments secured by homeowners in mold damage cases.

The Farmers settlement leaves State Farm as the sole insurer still appealing the commissioner's actions.

"This [Farmers] agreement avoids a very real potential of an extended legal battle and provides rate reduction for a substantial portion of the Texas homeowners market," Mr. Montemayor said.

John Hageman, Texas state executive director for Farmers, said that a significant decrease in claims related to water and mold damage permitted the rate reduction.

"Through all the turmoil in the Texas homeowners insurance market in recent years, Farmers has worked hard to serve customers," Mr. Hageman said.