A General Account is used by an insurer to deposit premiums from policies that are underwritten and from where they fund daily operations of the business. However, what must be noted here is that a general account doesn’t dedicate Collateral to a certain policy, rather it treats every fund in aggregate.
When an insurance firm underwrites a policy, it gets paid a premium by the policyholder. Such premiums get deposited into the general account of the insurer. The insurer then uses these funds in different ways.
These funds can also be kept aside as a loss reserve, which gets used to cover the losses that may be expected to occur within a year. Apart from that, these funds can also be used to pay for personnel, operations, and additional business expenditure.
To increase profitability, some of these premiums can also be invested in assets of varying risk liquidities and profiles. Furthermore, assets kept in the general account are typically owned by the general account and don’t get attributed to certain policy instead of all aggregated policies.
However, the insurer may choose to create a few distinct accounts to keep assets aside for certain liabilities or policies. These assets in distinct accounts are curated to cover the risks of policy linked with different accounts.
But in case the assets kept in the separate account are comprehended to be insufficient; the insurer may use funds from the general account to fill up the gap.
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Assets that are kept in the general account could be handled internally. Or, the management may get a third-party to regulate these assets. Changing products, increased global competition and aggressive pricing have compelled several insurance company executives to reassess their basic Investing strategy for funds in the general account.
The risk appetite for several Insurance companies is likely to be lower as they have to guarantee that the funds remain available to cover the liabilities. Typically, the general account investment Portfolio comprises mortgages and investment-grade Bonds.
Courtesy to Volatility and risks, equity and stock investments are not widely included in the portfolios of general account.