Default insurance on money market funds has spiked so sharply over the past year that a growing number of fund companies are dropping coverage rather than paying rates that have increased as much as 400%, according to industry executives.

Putnam Investments has become the latest firm to drop its default insurance coverage on its four money market funds. The firm's policy, which covered up to $30 million in losses, expired in December and the firm decided not to renew, said Laura McNamara, a company spokeswoman. Putnam will file a prospectus update later this month indicating the change, she said. As of the first of the year, the firm held approximately $5.2 billion in assets in the four funds.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.