New Jersey is moving to strengthen oversight of life insurance companies by proposing new rules aimed at tightening how insurers finance reserves for term and universal life policies. The regulations, published March 17 in the New Jersey Register, would align the state’s rules with national standards set by the National Association of Insurance Commissioners (NAIC).
The proposal, introduced by the Department of Banking and Insurance, calls for the adoption of the NAIC Term and Universal Life Insurance Reserve Financing Model Regulation #787, known within the industry as the XXX/AXXX Model Regulation. The move would bring uniformity and greater transparency to reserve financing, an area that has historically presented regulatory challenges.
At issue is how insurers manage reserves - capital set aside to ensure future claims payments. The proposed rules specifically target policies with secondary guarantees, which allow policyholders to retain coverage even when account values fall below zero.
For insurers, the rule introduces clear, standardized requirements governing the use of securities in reinsurance transactions. In previous years, many companies used captive reinsurance transactions to finance parts of their reserves, often tailoring asset strategies to their specific risk profiles. But the lack of consistency across companies and regulators raised concerns over solvency protections and regulatory transparency.
The proposal codifies Actuarial Guideline XLVIII (AG 48) - already in use in New Jersey - and incorporates the NAIC’s Model Regulation #787 directly into state law. Insurers would face more stringent documentation requirements and tighter regulatory review, ensuring reserves are backed by appropriate, high-quality assets.
“This rule enhances New Jersey’s commitment to maintaining solvency standards in line with national benchmarks,” the Department said in a statement, noting that compliance with Model #787 is a key component of the NAIC’s accreditation program, considered the gold standard for state-based insurance regulation.
The Department is accepting public comments on the proposal through May 16, 2025, and has invited input from insurers, policyholders, and other stakeholders. Comments may be submitted to Denise M. Illes, Chief of the Office of Regulatory Affairs.
For life insurers operating in New Jersey, the proposal is likely to eliminate regulatory ambiguity surrounding reserve financing practices. Companies may be required to revisit their reinsurance strategies, potentially facing higher costs to secure compliant forms of collateral.
At the same time, regulators and consumer advocates argue that the measure will bolster confidence in the financial health of insurers, ensuring that solvency standards remain robust.
While some insurers may view the tighter framework as limiting flexibility, the broader industry trend has been one of gradual acceptance. Since the NAIC model’s adoption in 2016, many states have moved toward similar standards.
