Segmentation of Insurance Company General Accounts

This paper describes a major refinement in methods of allocating general account investment income among lines of business, termed "segmentation." In a narrow sense, this is one more step in the evolution of the investment-year method; in a broader sense, segmentation provides the opportunity for major modifications in the structure and management of insurance company general accounts. The paper gives a detailed description of the segmentation plan recently adopted by the authors' company, then discusses the implications of segmentation for a company's ability to manage its asset and liability cash flows, for the design of insurance and pension products, for the design of investment strategies, and for the valuation of liabilities.