USAA can attest to the fact that insurance is getting expensive these days. The firm has opted to drop default insurance on its money market fund in light of rate hikes brought on by the Sept. 11 terrorist attacks.
Insurance rates had been rising since the firm first bought default insurance last year, but spiked after Sept. 11, said USAA spokesman Tom Honeycutt. Faced with a high-cost of renewal, USAA decided to pass on the insurance and changed its prospectus accordingly.
Dropping money market yields that are putting a squeeze on money market profit margins was not a factor in the decision, he said.
"It really was coincidental in the sense that the issue of negative yield comes at a time when our insurance contract expired," said Honeycutt. "And due to the circumstances of September 11, there has been quite a bit of pressure on various types of commercial risk insurance, as everyone I think is aware."
Rising costs made the value of the insurance dubious, but the firms decision to drop it may turn out to be a temporary.
"Because its a cost that shareholders bear, we need to make sure that theres some value there. We just didnt have the kind of time to evaluate that before we update our shareholder material and inform our shareholders of that situation," Honeycutt said.