State Farm has agreed to reduce homeowner rates 9 percent, aswell as pay almost $23.3 million in customer refunds and $1.5million in legal costs to the state of Florida, it was announcedtoday.

In addition, the Florida Office of Insurance Regulation andOffice of the Attorney General said the company agreed to cooperatewith the OIR on further investigations "related to potentialcollusion between insurers, trade associations and ratingorganizations."

The agreement follows last month's announcement by FloridaInsurance Commissioner Kevin McCarty that he had decided to expanda probe by the OIR into State Farm rate calculations and its plansto non-renew 50,000 policyholders. He said then that companyexecutives would face two days of grilling at a hearing instead ofone.

Those proceedings, which have now been cancelled, were scheduledafter OIR issued wide-ranging subpoenas for information to StateFarm Florida Insurance Company, State Farm Florida Fire andCasualty Insurance Company, and State Farm Mutual AutomobileInsurance Company.

Under the agreement--which OIR said would save Floridapolicyholders about $23 million--State Farm Florida will reducerates by an additional two percentage points. The additionalreduction comes on top of the 7 percent rate decrease State Farmimplemented in the spring for a total of 9 percent.

The rate changes were required of all insurers to account fornew state legislation providing primary insurers with discountreinsurance from the Florida Hurricane Catastrophe Fund.

In addition, the OIR said State Farm has agreed to change itsmethod for non-renewing 50,000 policies in coastal zones inFlorida. The non-renewals, which were announced in July, will nolonger be based upon whether policyholders purchase more than oneline of insurance from the company, OIR explained.

State Farm, officials said, has also agreed to refund excesssurcharges. The excess amount--$23.2 million, plus 5 percent simpleinterest ($115,890)--will be refunded to State Farm policyholdersbeginning in six months.

The insurer is also required, the announcement said, to begin aprogram of automatically notifying its auto policyholders that areeligible to transfer from State Farm Fire and Casualty Company tothe less-costly State Farm Mutual Company. This action comes aboutas the result of a comprehensive investigation by the OIR and theattorney general's office, officials said.

State Farm is also required to pay the OIR $500,000 (asreimbursement for the attorneys' fees and costs associated with thematters settled in the agreement) and $1 million to the attorneygeneral's office, payable to the Department of Legal Affairs TrustFund (as reimbursement for the attorneys' fees and costs associatedwith the agreement, as well as to cover costs of administering thefund, and for use in continuing enforcement efforts).

"State Farm has reduced its rates and has agreed to stopbusiness practices that the Office found objectionable," saidInsurance Commissioner Kevin McCarty. "Our governor and ourlegislature required this by law, so I am happy to see that StateFarm has reached this agreement for the benefit of itspolicyholders."

The company in a statement said the agreement is "a step inState Farm's long-term efforts to work with public policymakers tomeet the needs of Florida's challenging homeowners insurancemarket. The agreement further demonstrates a genuine andrevitalized spirit of cooperation between the OIR, the OAG, andState Farm to focus on the long-standing interests of the publicand State Farm customers.

Joe Formusa, State Farm Florida Insurance Company presidentsaid, "State Farm wants to be part of the solution for ourcustomers, the state and our company. This agreement moves us inthat direction."

The settlement is available online athttp://www.floir.com/pdf/StateFarmSettlement/Agreement10012007.pdf.

This article updated 1:35 p.m.