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Allstate: No new homeowners policies in Calif.

Nation's largest insurer says done to manage risk, while critics contend it is an effort to push through a rate increase.

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By David Ellis, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Allstate Corp. (ALL, Fortune 500), the largest home insurer in the United States, said this week it would no longer write new homeowner policies in California, marking another reduction in its property coverage nationwide.

The Northbrook, Ill.-based carrier, which insures about 17 million households nationwide, said the move was part of an effort to "manage the risk" of offering property insurance in "catastrophe-prone California".

Allstate said it would continue to insure its existing 900,000 policyholders in California. Those homeowners seeking coverage would be referred to another insurer, Pacific Specialty Insurance Company, which is based in California.

"Allstate is taking responsible action now so that the company will continue to be in a strong position to help protect customers in California and across the country," Robert Barge, the field vice president for Allstate in California, said in a prepared statement.

Steve Poizner, the commissioner of California's Department of Insurance, the state's regulatory body for the insurance industry, issued a statement questioning Allstate's decision.

"While the writing has been on the wall regarding its intent in California, I believe this is a short-sighted business decision," Poizner said. "I expect there will be no shortage of insurance companies who will be more than happy to compete to serve more than 1 million Allstate customers."

Last fall Allstate had proposed a 12.2 percent increase in premiums for its homeowners, its first in over three years, to cover the threat of fires and earthquakes that are known to plague California.

State regulators had questioned the proposed rate hike, pointing at Allstate rivals such as Safeco Corp. (SAF, Fortune 500) and State Farm who had reduced rates in recent years. Rumblings emerged last February that Allstate was considering tightening its policies or refusing new insurers.

One consumer group, the Foundation for Taxpayer and Consumer Rights (FTCR), argued that Allstate's decision to stop writing new policies was part of an effort to coerce the state into allowing the rate increase that is still awaiting a lawmakers' decision.

"If Allstate intended to hang the threat of leaving the state in order to pressure the state to allow them to charge excessive rates, then we say good riddance," said FTCR's Carmen Balber.

The new policy, which will take effect July 1 of this year, is the latest coverage cutback by Allstate. The carrier recently announced it would no longer write new homeowner policies in Florida, Connecticut, Delaware and New Jersey and in certain counties in the Atlantic and Gulf Coast regions.

Other insurers have made similar announcements, including State Farm, which announced earlier this year it would no longer write new homeowner and small business policies in Mississippi following a legal battle over Hurricane Katrina damage claims. To top of page

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