New Jersey is taking steps to improve oversight of life insurance companies with new rules aimed at how these insurers handle their reserves for term and universal life policies. The proposed regulations were published on March 17, 2025, and aim to align state practices with national standards set by the National Association of Insurance Commissioners (NAIC).
The New Jersey Department of Banking and Insurance introduced this proposal, which includes adopting the NAIC Term and Universal Life Insurance Reserve Financing Model Regulation #787, often referred to as the XXX/AXXX Model Regulation. This initiative seeks to bring more consistency and transparency to reserve financing, an area that has faced regulatory challenges in the past.
The focus is on how insurers manage their reserves, which are the funds set aside to pay future claims. The new rules particularly address policies with secondary guarantees. These guarantees allow policyholders to maintain their coverage even if their account values drop below zero.
For life insurers, the new rules will introduce clear requirements for using securities in reinsurance transactions. In recent years, some companies utilized captive reinsurance transactions to finance their reserves, tailoring their strategies to their specific risks. However, the lack of uniformity among companies and regulators raised concerns about financial stability and transparency.
The proposal also reinforces Actuarial Guideline XLVIII (AG 48), which is already in practice in New Jersey, and directly incorporates the NAIC’s Model Regulation #787 into state law. Insurers will face stricter documentation requirements and more rigorous regulatory reviews to ensure their reserves are backed by high-quality assets.
The Department of Banking and Insurance emphasized that these rules reflect New Jersey’s commitment to maintaining strong solvency standards in line with national benchmarks. Compliance with Model #787 is crucial for the NAIC’s accreditation program, which is regarded as the gold standard for state insurance regulation.
Public comments on the proposal are being accepted until May 16, 2025. The Department has invited feedback from insurers, policyholders, and other interested parties. Comments can be submitted to Denise M. Illes, Chief of the Office of Regulatory Affairs.
For life insurers in New Jersey, these proposed changes could clarify the rules surrounding reserve financing. Companies may need to reassess their reinsurance strategies, which could lead to higher costs for securing compliant collateral. However, regulators and consumer advocates believe that these measures will enhance confidence in the financial stability of insurers, ensuring that they meet robust solvency standards.
While some insurers might see the tighter regulations as a limitation on their flexibility, the trend in the industry has been moving towards greater acceptance of these standards. Since the NAIC model was adopted in 2016, many states have begun adopting similar regulations.