Why general account matters
Its investment policy must balance return with capital, liquidity, duration, credit quality, regulation, and the timing and optionality of insurance liabilities.
How it is applied
Analysis covers liability cash flows, asset-liability matching, reserves, capital requirements, credit exposure, liquidity, derivatives, securities lending, policyholder behavior, and legal priority. For an insurer, analyze assets held to support policyholder obligations and shareholder capital, including duration, credit, liquidity, currency, derivatives, and regulatory capital. Asset allocation should be evaluated against liability cash flows, guarantees, surrender behavior, and accounting treatment rather than as an unconstrained investment portfolio.
Portfolio example
An insurer invests premiums in bonds and mortgages held in its general account to support future annuity and insurance payments. An insurer’s general account holds 70% bonds, 15% mortgages, 10% equities, and 5% cash against long-dated policies. Rising rates reduce bond market values but can improve future reinvestment income; policy surrenders may simultaneously increase near-term liquidity needs.
How to interpret it
A policyholder’s return or guarantee generally depends on the insurer’s contractual promise and claims-paying ability, not direct ownership of each underlying asset. General-account policyholders typically have a contractual claim on the insurer rather than direct ownership of specific investments. Portfolio risk therefore affects the insurer’s solvency and ability to honor guarantees. Spread income must be considered alongside credit loss and liability cost.
Limitations and common misconceptions
Accounting and regulation vary. Credit losses, surrender waves, duration mismatch, derivatives, illiquid assets, and insurer insolvency can affect outcomes even when reported values appear stable. Reported asset values can follow different accounting bases, obscuring market sensitivity. Illiquid assets, derivatives, securities lending, and affiliate transactions add complexity. Policyholder behavior can change during stress. The term also has other institutional meanings, so context and legal entity should be stated. Evaluation should connect investment yield with credited rates or guarantees promised to policyholders. Reaching for illiquid spread can improve current income while increasing surrender and capital risk. Regulatory capital charges, asset-liability duration gaps, unrealized losses, and available surplus provide a more complete picture than reported investment return alone.
Sources and further reading
- Overview of Asset AllocationCFA Institute
- Portfolio Management for Institutional InvestorsCFA Institute