DEFINITION of 'General Account'

The account where an insurer deposits premiums from the policies that it underwrites, and from which it funds the 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.

BREAKING DOWN 'General Account'

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 that are 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 in any gaps.

Assets found in the general account may be managed internally, or the management may be provided by a third-party. Third-party managers are often employed by investment companies. The risk appetite for insurance companies tend to be relatively low, as the insurers have to guarantee that they will be able to use these assets to cover liabilities. Insurers are less likely to invest in equities and options than they are to invest in fixed income or real estate.

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