Separate Account is the account established by an insurance company to invest the pooled funds of variable contract holders in the securities markets. The separate account must register as either an open end investment company or as a unit investment trust under the investment company of 1940.
Applying "Separate Account" to Securities Exams:
A variable annuity is considered to be both a securities product and an insurance product. The separate account portion is where the insurance company holds the investors securities, and the general account is where the insurance company holds its own funds. If the separate account is set up as a direct investment separate account, the insurance company invests directly in stocks and bonds and an investment adviser must be hired to manage the portfolio. In this case the separate account must be registered as an open end investment company in accordance with the Investment Company Act of 1940. If it is set up as an indirect separate account, the insurance company invests in mutual fund shares and an investment adviser is not needed, as the mutual fund company already employs one to oversee the fund’s portfolio. The separate account is thus required to be registered as a UIT under the Investment Company Act of 1940.