For a decade, the Federal Insurance Administration has performed a minor miracle, running a congressionally mandated insurance program for crime victims without getting any money from Congress to make up the $120 million the program has lost.

A miracle, that is, if you don't examine the methods. For 10 years FIA has used the surplus built up for a separate insurance program to cover the crime insurance losses--a form of borrowing from Peter to pay Paul that would be illegal if done by a private insurer in any state in the country.

The transfer of funds between the federal riot reinsurance program and the crime insurance program was a simple gamble, according to insurance experts. Without a major riot in a city covered by the federal insurance program, the money would not be missed.

So far that gamble has paid off: the only major riot since the program began, last year's disturbance in Miami, was in a state that was not participating in the program. Thus crime victims were able to get subsidized coverage while inner-city property owners and their insurers got the riot protection they paid for.

Up to now, FIA's alchemy has paid political dividends, too: lawmakers could vote for a politically popular, money-losing program without increasing the federal budget by a nickel. Instead insurance companies and, indirectly, policyholders in 27 states have paid the bills.

But now that the riot fund reserves have been depleted, FIA may have to borrow from the federal treasury if a riot occurs or crime insurance losses continue.

Congress itself seemed oblivious to what was going on; it never specifically approved the fund transfer and never specifically forbade it. "I don't think there was a general awareness" of what was happening, said Rep. Henry B. Gonzalez (D-Tex.), chairman of the Housing and Community Development subcommittee. "I had a only general vague notion of it ."

"I don't believe in jerry-built situations," he added. "It's only fair that if a program can't stand on its own that we will consider if it is of such a magnitude of importance" that it should be funded from general revenues.

Both of the insurance programs were byproducts of the 1960s social ferment, when urban ghettos burned and crime statistics climbed. Before then, insurance firms often paid other companies to reinsure fire and theft policies in inner cities and assume some of the risk of loss. But as riots spread, losses mounted, reinsurance grew scarce and policies became virtually unobtainable in inner cities.

So in 1968, Congress established the Urban Property Protection and Reinsurance Program, commonly known as riot reinsurance. If states set up a plan requiring insurance companies to offer property insurance policies in problem-plagued urban areas, the federal government would back the policies.

At its peak, 27 states participated in the program; insurance companies in these states paid premiums--at market rates--into the National Insurance Development Fund. In most cases, the cost of the federal reinsurance was passed on indirectly to all property insurance policyholders in a given state, according to David Brummond, government liasion director of the National Association of Insurance Commissioners.

The fund had a growing surplus when Congress came up with a new idea: federal property insurance for potential crime victims in high-crime areas, where no private insurer wanted to take the risk.

"Affordable" federal crime insurance was overwhelmingly enacted in 1970. Premiums costs were kept artificially low; for every $1 in premium income, FIA paid out $3 in claims. And Congress never appropriated funds to make up the difference.

That's where the riot reinsurance surplus came in handy. FIA officials simply took one program's surplus to pay the other's losses. Thus money was transferred from insurance companies and their property insurance policyholders in 27 states to crime victims, mostly small business men in New York City.

In 1981 alone the crime program paid out $38 million in 29 states; $30 million--79 percent--of this went to New York state (chiefly New York City); $20 million went to that state's small business men.

No state insurance commissioner allows private insurers to use income from one group of policyholders to subsidize the losses of another. "This practice depletes one reserve for the benefit of another; it would not have been permitted," said Brummond of the insurance commissioners association. But at least for the short term, it seems likely the practice will continue: riot reinsurance premiums were just raised from 2.5 cents per $100 of coverage to 25 cents to help cover continuing losses in the crime insurance program.

"We think we faithfully carried out the mandate" of Congress, said FIA administrator James Rose. But, he added, "The lack of a congressional appropriation postponed the inevitable day of reckoning."

If a riot occured, he said "there's a strong likelihood we would have to use the $250 million in authorized borrowing authority, and that's not a sound way to handle it financially."