New Jersey Proposes Stricter Rules for Life Insurance Reserves
New Jersey is taking steps to bolster its oversight of life insurance companies. The state’s Department of Banking and Insurance has proposed new regulations designed to tighten how insurers finance reserves for specific types of policies. The goal is to ensure that companies are financially sound and can meet their obligations to policyholders.
These proposed rules, published in the New Jersey Register on March 17, 2025, aim to align the state’s standards with the national benchmark set by the National Association of Insurance Commissioners (NAIC). The proposed regulations would adopt 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 bring greater uniformity and transparency to reserve financing—an area that has historically presented regulatory challenges.
At the heart of the issue is how insurers manage reserves, the capital they set aside to guarantee future claims payments. The rules are particularly focused on policies with secondary guarantees; these guarantees allow policyholders to maintain coverage even if their account values dip below zero. For insurers, the proposed rules will establish clear, standardized requirements governing the use of securities in reinsurance transactions. Previously, many companies utilized captive reinsurance to finance parts of their reserves, a practice that allowed them to tailor asset strategies to specific risk profiles. However, the lack of consistency across different companies and regulatory bodies raised concerns about solvency and regulatory transparency.
The proposal effectively codifies Actuarial Guideline XLVIII (AG 48), already in use in New Jersey, directly into state law, incorporating the NAIC’s Model Regulation #787. Insurers would face stricter documentation requirements and a more rigorous regulatory review process to ensure reserves are backed by proper, high-quality assets. “This rule enhances New Jersey’s commitment to maintaining solvency standards in line with national benchmarks,” the Department stated. They also noted that compliance with Model #787 is a key component of the NAIC’s accreditation program, widely considered the gold standard for state-based insurance regulation.
The Department is currently accepting public comments on the proposal through May 16, 2025, and has invited input from insurers, policyholders, and other stakeholders. Written comments can 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 any uncertainty surrounding the financing of reserves. This may require companies to re-evaluate their reinsurance strategies, potentially leading to higher costs to secure fully compliant forms of collateral. However, regulators and consumer advocates argue that this measure will strengthen public confidence, guaranteeing the financial health of insurers and ensuring robust solvency standards.
While some insurers may view the stricter framework as a limitation that reduces their flexibility, the industry trend toward standardization is fairly clear. Since the NAIC model was adopted in 2016, many states have moved toward similar standards.
