State regulators are worried that a new self-insurance fund lacks enough members to spread its risk and say it hasn't submitted all the paperwork needed to keep its license.

The Florida Office of Insurance Regulation issued an order Wednesday stating the Palm Beach Windstorm Self-Insurance Trust - a pool of 18 high-rise condominiums in Palm Beach and Broward counties - violated its agreement with the state by failing to show a bank-issued letter of credit for one of its original four members.

The trust has 21 days to file a petition to contest the order.

If it doesn't, the state will suspend its authority to operate as a commercial self-insurance fund.

Richard Duer, a consultant to the trust, said Thursday he expects to submit the last letter of the credit in a matter of days.

"We expect it to be dropped," Duer said of the order. "But at the moment we have a scary problem that we don't like."

In the meantime, all members maintain their coverage, he said.

But Insurance Commissioner Kevin McCarty is concerned about how few condos have joined the trust, said Tom Zutell, deputy communications director for the office.

The trust's original business plan indicated it would write insurance for more than 50 condo associations, Zutell said. The trust has 18 members.

"If you're going to spread the risk and self-insure yourselves, obviously you have to have a high enough number to show you can spread the loss," Zutell said Thursday.

Another condo self-insurance fund surrendered its license to the state last week because it couldn't get enough members, he said.

That group, Hollywood-based Cam Property Self-Insurance Fund, was the first to be licensed under a 2007 state law permitting self-insurance trusts, Zutell said.

Part of the problem, according to Duer, is that the trust has to market through insurance agents - but agents make far less commission on self-insured trust policies than they do from more expensive policies with state-sponsored Citizens Property Insurance Corp.

Still, he said the trust expects to have almost 58 members by the end of the year.

The letter of credit the state is waiting for is from Ambassador South in Palm Beach, Duer said.

Its association has gone through several banks to get a letter and finally found a regional bank up to the task.

Al Reiss, 73, a resident of Ambassador South, said he believes banks' reluctance stemmed from turmoil in the industry.

"What happened is the banks today are gun-shy," Reiss said. "We have an excellent balance sheet, our building is 40 years old, and we have plenty of money."

Reiss remains optimistic that such trusts are the best option for insurance.

Ambassador South's association saved about $60,000 on its annual premium in January by switching to the trust from Citizens.

The trust keeps costs down by being choosy about which buildings it insures, said Reiss, a former insurance broker who is vice chairman of the condo association's insurance committee.

"This will work because we're taking the cream of the crop," he said.