General Account

General Account

Definition

A general account is the insurer’s central fund where premiums from policyholders are pooled. Funds in the general account are held collectively to cover reserves, operating expenses, and policy liabilities rather than being tied to any single policy.

How it works

• Premiums paid by policyholders are deposited into the general account.
• The insurer allocates those funds to:
• Loss reserves to cover expected claims
• Operating costs (staff, administration, etc.)
• Investments to generate income and meet future liabilities
• Assets in the general account are owned by the insurer’s general account and benefit all policies in aggregate.

Insurers may also create separate accounts to back specific policy obligations (for example, certain investment-linked or guaranteed products). If a separate account falls short, the insurer can draw on the general account to cover gaps.

Investment strategy and risk profile

Because the general account must support guaranteed liabilities and be available for large payouts, insurers typically adopt a conservative investment approach:
– Preference for investment-grade fixed-income securities (bonds, mortgages) and real estate
– Limited exposure to equities and high-volatility instruments
– Management can be handled internally or outsourced to third-party managers
– Low overall risk appetite to preserve liquidity and capital for claims

As an illustrative data point, common stock represented a relatively small portion of insurers’ portfolios (about 13.2% of overall investments for carriers at the end of 2020), reflecting this conservative stance.

Practical implications

• Policyholders backed by an insurer’s general account rely on the company’s aggregate assets and financial strength rather than on dedicated collateral.
• During major disasters or large claim events (e.g., catastrophic natural disasters), the conservative investment posture helps insurers meet large payout obligations without forced asset sales at depressed prices.

Key takeaways

• The general account is the pooled fund for insurer premiums and obligations.
• It finances reserves, operations, and investments to meet policyholder claims.
• Investments are typically conservative—focused on fixed income and other lower-risk assets—to ensure liquidity and solvency.