A separate account is a
segregated account Segregation may refer to:
Separation of people
* Geographical segregation, rates of two or more populations which are not homogenous throughout a defined space
* School segregation
* Housing segregation
* Racial segregation, separation of humans ...
ing and reporting
account held by an
insurance
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect ...
company not in, but rather "separate" from its
general account. A separate account allows an investor to choose an investment category according to his individual risk tolerance, and desire for performance. An account may be a generic conservative or aggressive investment allocation, or a specific
mutual fund
A mutual fund is an investment fund that pools money from many investors to purchase Security (finance), securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in ...
-type account. Some
offshore companies
The term "offshore company" or "offshore corporation" is used in at least two distinct and different ways. An offshore company may be a reference to:
* a company, Corporate group, group or sometimes a division thereof, which engages in offshorin ...
allow the account owners to specify the type of separate account to open.
Separate accounts in the
U.S.
The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 states and a federal capital district, Washington, D.C. The 48 contiguous ...
markets are often characterized as either managed or non-managed. A managed separate account is synonymous to a mutual fund in the sense that the investments of the separate account are actively managed (such as
stocks
Stocks are feet and hand restraining devices that were used as a form of corporal punishment and public humiliation. The use of stocks is seen as early as Ancient Greece, where they are described as being in use in Solon's law code. The law de ...
,
bonds or other
debt instruments, loans, derivative instruments, etc.). A non-managed separate account is one that invests more "passively" in that it typically owns shares of other managed pools of investments such as mutual fund shares. This is similar to a "
fund of funds
A "fund of funds" (FOF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in stocks, bonds or other securities. This type of investing is often referred to as multi-manager investment. A f ...
" whereby the separate account ("fund") simply invests in shares of one or more mutual funds. This arrangement is sometimes more efficient and cost-effective rather than the insurance company maintaining many separate accounts with similar baskets of securities.
Separate accounts are sometimes confused with
separately managed accounts (SMAs), which are privately managed investment accounts opened through a brokerage or financial adviser that uses pooled money to buy individual assets. These differ from mutual funds because the investor directly owns the securities instead of owning a share in a pool of securities. Most SMAs require a minimum investment of $100,000 or more.
References
Insurance
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