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Fidelity Drops Default Insurance


Facing sky-rocketing insurance costs, Fidelity Investments has decided to drop default insurance on all of its money market funds, said Jim Griffin, a spokesman with the company.

Fidelity had been offering default insurance on its funds covering up to $100 million in losses but has decided not to renew the insurance in 2002 because the costs have become prohibitive, he said. Griffin said in some instances default insurance costs have risen as much as 250% to 400% compared to last year.

Default insurance premiums have steadily increased following the September 11 terrorist attacks, the default of energy company, PG&E and an overall increase in the default rate, said Peter Crane, a managing editor with iMoneynet.

Fidelity's decision to discontinue its default insurance follows a similar move made by USAA last month. USAA decided to drop its insurance after premiums spiked following the September 11 tragedy, said Tom Honeycutt, a company spokesman. [MFMN 12/11/01]

Fidelity took out its own money market insurance on Jan. 1, 1999 by forming the Fidelity Money Market Insurance Company to insure its money market funds. At the time, the firm decided to offer the insurance because it "saw it as a cost effective and tax efficient method of dealing with the remote issue of default," a Fidelity spokesman said. [MFMN 7/10/99]