General Account

The general account is where an insurer deposits premiums from policies it underwrites and from which it funds day-to-day operations of the business. The general account does not dedicate collateral to a specific policy, and instead treats all funds in aggregate.

When an insurance company underwrites a new policy, it is paid a premium by the policyholder. These premiums are deposited into the insurer’s general account. The insurer will use these funds in a variety of ways. It will set aside a portion as a loss reserve, which is used to cover the estimated losses it expects may occur over the course of the year. It will also use these funds to pay for operations, personnel and other business expenses. In order to increase profitability, however, it will also invest some of these premiums in assets of various risk profiles and liquidities.

Assets held in the general account are “owned” by the general account and are not attributed to a specific policy but rather to all policies in aggregate. The insurer may choose, however, to create separate accounts to set aside assets for specific policies or liabilities. Assets in the separate accounts are designed to cover the policy risks associated with the separate account, though if the separate account’s assets are ultimately determined to be insufficient, the insurer may use general account funds to fill any gaps.

Assets found in the general account may be managed internally, or the management may be provided by a third-party. Increased global competition and changing products with aggressive pricing and guarantees have forced many insurance company executives to reevaluate their traditional investing strategy for general account funds. The risk appetite for insurance companies tends to be relatively low because they have to guarantee that funds are available to cover liabilities.

Insurers are less likely to invest in equities and options than they are to invest in fixed income or real estate. The general account investment portfolio typically contains investment-grade bonds and mortgages. According to SNL Financial as of year-end 2016, life insurance carriers investment portfolio consisted of 75.86 percent bonds and 11.69 percent mortgage loans. 33 percent of the bond portfolio had maturities less than 5 years; 46 percent had maturities between 5 and 20 years; and 21 percent had maturities greater than 20 years. Due to volatility, common stock and other equity investments aren't widely included in general account portfolios, and in 2016 comprised less than 2 percent of overall investment portfolios for insurance carriers.