Florida Insurance Commissioner Kevin McCarty tried to lobbymembers of Congress last week for a federal line of credit to helpcover an $18.5 billion shortfall in the state's HurricaneCatastrophe Fund, a gap that could pose problems for some of thestate's recent insurance startups.

Indeed, "the potential inability" of the Florida HurricaneCatastrophe Fund to honor claims might adversely affect theFinancial Stability Rating of carriers dependent on the reinsurancethe state fund provides, Demotech Inc. warned last November, givingMay 15 as a deadline for reassessing the situation.

To extend ratings for startup property insurers in Florida pastMay 15 will require definitive word of full backing by the catfund, or documentation of financing from "bridge loans oralternative financing mechanisms that provide liquidity" while thefund is raising capital, Joseph L. Petrelli, president of theDublin, Ohio-based Demotech, said in a letter on his Web site.

Unlike most rating services, Demotech evaluates insurers inbusiness less than three years, thus providing ratings for most ofthe startup firms launched since the state was hit with big stormlosses in 2005, explained a representative of the Florida Office ofInsurance Regulation, Ed Domansky.

Without Demotech's Financial Stability Rating indicating theyare sound, the newer firms would be unable to operate, he said.

Jack Nicholson, chief operating officer for the cat fund,explained that under legislation approved last year, the fund isrequired to provide $29 billion in reinsurance--but may not be ableto borrow enough to meet that obligation under today's tight bondmarket conditions.

As a result, Commissioner McCarty tried to talk last week withU.S. House Reps. Ron Klein and Debbie Wasserman-Schultz--bothFlorida Democrats--but due to President Barack Obama's trip to Ft.Myers, neither was able to personally meet with him, according toMr. Domansky.

The commissioner, he reported, did meet with Rep. Klein's chiefof staff and legislative director, as well as with Rep.Wasserman-Schultz's chief of staff, legislative director and deputylegislative director, and with someone from Gov. Charlie Crist'sWashington, D.C. office.

The commissioner's goal was to propose that "Florida beconsidered for a federal line of credit, for which the state wouldpay a premium and would recoup any advances through bonding andstatutory assessments within Florida," Mr. Domansky said.

However, the commissioner took heat from a conservative thinktank for seeking federal support.

"Reliance on a federal bailout as official state policy isreckless at best," according to Christian C?mara, Florida officedirector for the Competitive Enterprise Institute, which describesitself as a nonprofit public policy group dedicated to freeenterprise and limited government.

"Instead of lobbying Washington politicians for money,Commissioner McCarty and Gov. Charlie Crist should return toTallahassee and work together with the legislature to restore ahealthy, competitive insurance environment to ensure that Floridais able to weather the aftermath of a storm," he added.

"Taxpayers should not be forced to bail out either Florida orthe politicians that have placed the state one storm away fromeconomic meltdown," he said.

Mr. Domansky countered that "the commissioner is not proposing abailout or asking for a blank check, and any suggestion to thecontrary is untrue."

He added in an e-mail that "the line of credit would betriggered only in the extremely unlikely event that a stormexceeding the claims-paying ability of the cat fund were to hitFlorida and the credit markets were still in disruption."

Still, Mr. McCarty's lobbying effort was characterized as a"really, really bad idea" by CEI Senior Fellow Eli Lehrer, whodirects the group's Washington-based Insurance Project.

"We've already done far too many bailouts of private companies.State governments--particularly ones that make bad decisions--don'tneed bailouts as well. Congress should say 'No' to Kevin McCarty,"according to Mr. Lehrer.

Demotech rates about 62 Florida insurers, according to Mr.Petrelli, who said that since his notice was posted, somewhere inthe range of 30-to-40 percent had provided documentation indicatingthey have adequate financial strength, while the rest are invarious states of review.

"Our hope is that things get resolved at the cat-fund level,"said Mr. Petrelli, adding that in the meantime, there are "variousopportunities for insurers to address a short-term liquidityissue."

He said he was surprised at the consternation his Novemberletter caused, and he had various meetings with officials at theOffice of Insurance Regulation, the state Attorney General's Officeand other departments to reassure them he was not takingprecipitous action.

Mr. Domansky said they understand now that the letter was not athreat, noting that May 15 is the date when the legislature is dueto end its session and presumably find a solution to the state'sinsurance woes.

Mr. Nicholson said the fund is currently healthy in terms ofliquidity. "We're rated 'double-A-minus'" [by Standard & Poor'sand Fitch], but would not be if the fund were to sustain $29billion or $30 billion in losses."

He said that by year's end, the fund expects to have $4 billionin premium payments, $3.5 billion in notes, and bond capacity forperhaps $3 billion, which adds up to $10.5 billion--or "$18.5billion short of our optimum level."

Demotech's possible action and the catastrophe fund's shortfallare a matter of concern to many in the industry, including Henry K.Williams, a Marianna, Fla.-based State Farm agent.

Mr. Williams said via e-mail that the May 15 date posted byDemotech created a poignant question, since if the firm were topull its ratings of insurers, then their customers would have tomake decisions 15 days before the start of the hurricane seasonabout where to get coverage.

He said state officials had made negative comments about StateFarm purchasing too much reinsurance, but "it seems to me, in lightof the situation with the [cat fund] and the intentions ofDemotech, that they may not have been trying to buy enough."