New Jersey Moves to Standardize Life Insurance Reserve Financing
In a move to bolster the financial stability of life insurance companies, New Jersey is set to implement new regulations that will standardize how these companies finance their reserves for term and universal life policies. The proposed rules, published in the New Jersey Register on March 17, 2025, aim to align the state’s practices with national standards set by the National Association of Insurance Commissioners (NAIC).
The Department of Banking and Insurance has introduced a proposal adopting the NAIC Term and Universal Life Insurance Reserve Financing Model Regulation #787, often referred to as the XXX/AXXX Model Regulation within the industry. This move is designed to introduce uniformity and enhance transparency in reserve financing, an area that has historically presented regulatory challenges.
At issue is how insurers manage reserves – the capital they set aside to guarantee future claim payments. The proposed regulations specifically target policies with secondary guarantees, which ensure policyholders maintain coverage even if their account values fall below zero.
For insurance providers, the new regulations will introduce clear, standardized requirements on using securities in reinsurance transactions. Previously, many companies employed captive reinsurance arrangements to finance parts of their reserves, often customizing their asset strategies to their specific risk profiles. The lack of consistency across companies and regulators raised concerns about solvency protections and regulatory transparency.
By incorporating the NAIC’s Model Regulation #787 directly into state law and codifying Actuarial Guideline XLVIII (AG 48), which is already in use in New Jersey, the proposal will require insurers to meet more stringent documentation standards and will subject them to tighter regulatory review. This is intended to ensure that reserves are backed by appropriate, high-quality assets.
“This rule reinforces New Jersey’s dedication to maintaining solvency standards that align with national benchmarks,” the Department stated, noting that adherence to Model #787 is a key component of the NAIC’s accreditation program, considered the gold standard for state-based insurance regulation.
The Department is currently seeking public feedback on the proposal, with a deadline for comments set for May 16, 2025. Input from insurers, policyholders, and other stakeholders is encouraged and can be submitted to Denise M. Illes, Chief of the Office of Regulatory Affairs.
The implications of this proposal are significant for life insurers operating in New Jersey. It is likely to eliminate uncertainties about reserve financing practices. Companies might need to reassess their reinsurance strategies, potentially incurring higher costs to acquire compliant forms of collateral. However, regulators and consumer advocates believe the measure will build confidence in the financial health of insurers, ensuring robust solvency standards.
While some insurers might view the stricter framework as limiting flexibility, the broader industry trend has been one of gradual acceptance. Since its adoption in 2016, many states have moved toward similar standards.
