Unaffiliated Investments

Aug 29, 2022 By Triston Martin

Unaffiliated investments are investments of an insurance firm that is not controlled by nor shares the same ownership. These investments could comprise bonds, stock properties, and other assets. They are typically included in the financial statements of insurers.

Understanding Unaffiliated Investments

Insurance firms use the money they get through underwriting for various uses using the money they bring in. They do this by setting aside cash known as loss reserves, which cover liabilities that may be incurred as a result of policyholders submitting claims. They are responsible for operating expenditures such as payroll, benefits, and overhead, in addition to paying commissions to brokers who bring in new business. In addition, they set aside some of their funds to invest in other types of liquid assets in the hope of maximizing the return on the premiums they collect.

For insurers to meet their obligation to pay claims, they must access sufficient cash. Consequently, they commonly make a short-durations investment in a high liquid asset that can readily and rapidly be turned into cash alongside longer-term assets that can yield a larger return. An insurer's legal responsibility might run anywhere from a few months to a few years, depending on the kinds of insurance policies that they write. Regarding the insurer's present liquidity, short-term assets are regarded as a component of it. This liquidity is utilized to cover policies that have a duration of less than a year.


Historically, most insurers' investments were made in conventional asset classes such as government bonds since these investments offered consistent returns. Since the onset of the financial crisis, this strategy has been more difficult to implement. Since, historically, low-interest rates have become the norm, insurance companies have been compelled to broaden their investment strategies to maintain profitable margins. In most instances, this has led to a movement into alternative investment investments, such as private equity, and structured finance, such as residential mortgage-backed securities.

Because of the often higher levels of complexity involved with non-traditional investments of this kind, many insurance companies have been contracting out the administration of their investment portfolios to specialized investment management companies. This has been especially true for more compact insurance companies, which often have fewer resources at their disposal and are thus less able to manage their portfolios on their own successfully.

Special Considerations

Insurance companies must regularly provide their financial statements to state insurance regulators. They examine the ratio of liquidity to assess how fast an insurer can be in a position to pay the liabilities of its policyholders and to determine whether its investment strategy and the holdings of the company are likely to be a threat to its financial viability.

Investments that are not affiliated with each other are part of the total liquidity ratio; however, this ratio doesn't consider the affiliated investments. They do, however, count in the calculation of the combined ratio. It is because the total ratio analyzes the cash outflows, including expense ratio loss, loss-adjustment ratio, and dividend ratio, to find out how much it will cost to keep the books of business.


The Fund and the Adviser recognize that one of the main features that the contracts offer is their capability to select from a variety of mutual funds that are not affiliated (and the portfolios and series of), which include the Designated Portfolio(s) along with those of the Unaffiliated Funds, as well as to transfer the value of the Cash Contract between portfolios and funds. The Fund, along with the advisor, agrees to collaborate with GWL&A and Schwab to facilitate the operation of the account and the Contracts as described in the prospectus of the Contracts, which includes but is not only the facilitation of transfers between funds that are not affiliated.

The Fund, as well as the Distributor and the Adviser, recognize that one of the main features of Contracts is the right of the contract owner to select from a range of mutual funds unaffiliated (and collections or portfolios of them) comprising the Designated Portfolio(s) as well as the Funds that are not affiliated, as well as to transfer the cash value of the Contract between portfolios and funds. The Fund, as well as the Distributor and the Adviser, are willing to work in cooperation with GWL&A and Schwab in facilitating the use of the Account and Contracts as set out in the prospectus of the Contracts and the Contracts, which includes but is not restricted to collaboration in the process of facilitating the transfer of funds between unaffiliated funds.

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