Separate Accounts

What are Separate Accounts?

A “separate account” is a separate set of financial statements held by a life insurance company, maintained to report assets and liabilities for specific products that are separated from the insurer’s general account. The product features in a separate account can vary, but at a high-level, a separate account will commonly include what can be broadly described as the investment portion of a variable annuity or a life insurance product. (Separate account assets and liabilities are reported as a component of the life insurer’s general account financial statement.)

Why do insurers have Separate Accounts?

Separate accounts were originally established in response to federal securities laws for investment-linked variable annuities. Although it took many years, the application of separate accounts has dramatically expanded beyond this simple product design. Product development has resulted with an array of “hybrid” products—products that overlay traditional insurance company guarantees (e.g., mortality, morbidity, etc.) being allocated to the separate account investment portfolio.

Separate Accounts typically offer life insurers:

Generally lower crediting rates than general account investments, potentially higher fees from professional money managers, rate of return may be fixed, indexed, reset periodically or based on the performance of the segregated assets, a conservative investment option and demonstrated safe track record, protection, security and risk tied to the underlying investments in the fund, and less flexibility for fund managers when choosing underlying investments.

Guaranteed insurance accounts can be structured in two ways: general accounts or separate accounts. In the general account structure, the assets are invested in and owned by the insurance company’s general account, which means that the entire general account of the insurance company, and effectively the ultimate claims paying ability of the insurer, supports the stable value guarantees. The assets in a general account are not attributable to any single policyholder or liability, and the Employee Retirement Income Security Act (ERISA) generally excludes the assets supporting these guaranteed insurance accounts from the definition of plan assets and treatment as plan asset as long as they are guaranteed benefit policies.

Separate accounts differ from general accounts in that the assets are segregated from the general account of the insurer. The guarantees for the specific plan are first backed by the separate account, and only if the separate account assets are insufficient would the general account step in to make up any potential shortage.

How does Clearwater help with Separate Accounts?

Clearwater offers a comprehensive solution for fund accounts for life insurers, combining daily aggregation, reconciliation, and validation of data with flexible reporting capabilities. It supports multi-basis, multi-currency, and multi-asset requirements, ensuring versatility. The platform provides competitive regulatory support, particularly for NAIC reporting. With robust accounting calculations at both the portfolio and fund level, Clearwater enables accurate and efficient financial management.

Additionally, it helps reduce outsourcing costs, making it a cost-effective choice for life insurers. Strategic vendor consolidation synchronizes workflows, reducing expenses by eliminating multi-vendor contracts. Clearwater offers a single-instance view of the portfolio, enhancing transparency and simplifying management of general and separate accounts.

Speak directly to an expert to learn more about separate accounts.