Commissioner Poizner added that companies such as Farmers, Safeco, State Farm, AAA, and The Hartford have reduced insurance rates for California customers by more than $1 billion, in direct contrast to Allstate's actions.

“Allstate's decision not to accept new business does not entitle them to charge excessive rates,” he said.

He said that in the coming weeks, his department will be watching Allstate's actions very closely to ensure that consumers are protected and Allstate fulfills its contractual obligations.

Robert Barge, California field vice president for the Northbrook, Ill.-based Allstate, said in a statement that the carrier made the move “to be in a strong position to help protect customers in California and across the country.”

Mr. Barge said Allstate has developed a program in which more than 1,200 agencies in the state will help new customers looking for property insurance obtain coverage through Pacific Specialty Insurance Company, a firm not owned by Allstate.

Allstate will continue to renew all current customers, he said.

An Allstate representative, Rich Halberg, told National Underwriter that a hearing has been set for September on the company's request for a 12 percent rate increase, at which time it will demonstrate the need for such a hike.

Unlike the hurricane risk in coastal states, the prime catastrophic risk in California, earthquakes, is borne not by insurers, but rather by the state's California Earthquake Authority.

However, Sam Sorich, president of the Association of California Insurance Companies, said carriers still face the risk of costly wildfires and fire damage following an earthquake.

Meanwhile, Allstate's decision to stop writing new policies in the state has raised the ire of consumer groups.

Carmen Balber, a consumer advocate for the Santa Monica-based Foundation for Taxpayers and Consumer Rights, said company has made “outrageous profits” in the state, paying out $.33 in claims for every dollar of homeowner premium in 2005, and $.25 the year before.

“Allstate can't bully California into accepting outrageously high rates by taking their coverage and going home,” she said.

The group plans to use regulatory provisions established under California's Proposition 103 to block Allstate's proposed 12 percent rate increase and order a 40 percent reduction in the state's rates.

In fact, now that Allstate no longer has the administrative costs of serving new customers, it should be forced to cut rates even more, according to Ms. Balber.

The largest, second-largest and fifth-largest homeowners insurance writers in the state–State Farm, Farmers Insurance Group and USAA, respectively–all lowered rates last year in the same market where the number three player, Allstate, is seeking an increase, Ms. Balber noted.

Mr. Sorich countered that each company's rating situation is unique. “The other companies felt they could take the rate decrease. Allstate did not,” he said.