NU Online News Service, Dec. 8, 3:46 p.m.EST

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WASHINGTON–Financial firms could be forced to bail outFlorida's troubled property insurer of last resort under anamendment proposed for House financial services reform legislation,according to one analysis,

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The measure must be cleared by the House Rules Committee.Proposed by Rep. Kathy Castor, D-Fla., it "would specify that statecatastrophe insurance programs are covered financial companies withrespect to enhanced dissolution authority."

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Requests for comment from Ms. Castor, who represents the Tampaareas, drew no immediate response.

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Eli Lehrer, a senior fellow at the conservative HeartlandInstitute think tank in Washington, said adding the amendment toHouse financial services legislation would mean that largefinancial firms would be forced to bail out Florida's troubledCitizen's Property Insurance Corporation.

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According to a study by the Insurance Information Instituteearlier this year, Citizen's is among a number of state-runproperty insurers of last resort "on shaky ground" financially.

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According to the I.I.I. report, Citizens accounts for 69 percentof all state residual market FAIR Plans' exposure to loss, and sawits exposure more than double from $210.6 billion in 2005 to $485.1billion in 2007, "reflecting rising coastal property values andhigher building and reconstruction costs."

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Florida Citizens' exposure to loss declined somewhat to $421.9billion in 2008, and by June 30, 2009, around $400 billion, I.I.I.noted.

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"The amendment is only six words but would have sweeping,negative consequences for the nation and the federal budget," Mr.Lehrer said.

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He said it would benefit only Florida and nowhere else, "becauseno other state clearly qualifies–although California may."

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The Florida program, said Mr. Lehrer, is already insolvent basedon private sector accounting standards, meaning federal taxpayers(and banks under the proposed regime) could potentially be on thehook for the entire $20 billion or so in Citizen's unfundedliability.

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It would be added to H.R. 4173, the Wall Street Reform andConsumer Protection Act of 2009. The Rules Committee is todayconsidering what amendments it will clear for floorconsideration.

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Debate on the huge bill will begin tomorrow, with the HouseDemocratic leadership planning to have a final vote by Friday.

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Amongst its other provisions, the bill would allow federalbanking regulators to take over systemically risky financialinstitutions and liquidate them.

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Another provision of the bill sets up a systemic risk resolutionfund that would be funded by assessments by financial institutionswith assets of $50 billion or more.

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Creation of the systemic risk resolution system was crafted bycongressional Democrats to assuage the anger of votes over the useof taxpayer money to bail out so-called "too-big-to-fail" financialinstitutions last year.

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It would force large financial firms to absorb the cost ofbailing out systemically risky financial firms.

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Several trade groups representing large insurance companieswrote a letter today to the Senate Banking Committee asking themnot to include the provision establishing the risk resolution fundin the House bill in the companion bill that is being drafted.

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