LOUISVILLE - State Farm Insurance Co., the state's largest home insurer, stopped writing policies for new customers in order to offset the company's losses.

        Agents were notified this week that they can only write new policies for current policyholders, said Dustin Miller, a State Farm spokesman in Lexington.

        “Our first obligation is to our existing customers,” he said. “We're taking this action to bolster our financial strength to help serve their needs.”

        Mr. Miller wouldn't specify whether existing homeowner policies would be canceled or not renewed as part of the company's restrictions.

        Overall, State Farm has about 212,000 homeowners policyholders in Kentucky, with premiums that topped $90 million last year.

        Ohio does not fall under these restrictions, but a similar policy is being considered, said Judy McConkey, a State Farm spokeswoman.

        The restriction could cause rates to increase and make it difficult for consumers to get insurance, said Bruce Rademaker, president of Thoroughbred Associates, an independent insurance agency in Middletown.

        “There could be a snowballing effect,” he said.

        “If State Farm clamps down and gets rid of less-desirable customers, other companies might not want them, either. People could have difficulty finding a policy.”

        Companies can't arbitrarily cancel or refuse to renew a policy, said Ronda Sloan, a spokeswoman for the Kentucky Department of Insurance.

        “There are laws to follow, and consumers have rights,” she said.

        State Farm's new restriction in Kentucky reflects the tight financial times affecting the insurance industry.

        According to the Insurance Information Institute, home insurers paid out $8.9 billion more in losses and expenses than they took in from premiums last year, making it the second-worst year on record.

        State Farm lost $5 billion in 2001 because of more frequent and severe claims, high costs, low rates and small returns from the stock market, Mr. Miller said.

        The company also paid $1.71 in claims for every $1 in premiums, he said.

        Officials set a goal of adding 2,500 homeowners policies in Kentucky this year, but by the end of July, State Farm had written more than 7,000, Mr. Miller said.

        “Normally, that's great, but new policies usually incur significant initial expenses,” Mr. Miller, the company spokesman, said.

        To cope with the losses, State Farm also raised Kentucky rates this year an average of 21.5 percent.

        Other major insurers in the state have done the same.

        Enquirer reporter Erica Solvig contributed.

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