N.J. Seeks Deposit From First Executive : Insurance: The ailing firm must make a $500-million payment or lose its right to sell policies there, the state says.

The New Jersey Insurance Department demanded a $500-million deposit from troubled First Executive Corp. for the right to continue selling life insurance in the state.

But the state allowed a Thursday deadline to pass following an outcry by the National Assn. of Insurance Commissioners over the drastic action.

Jo Glading, a spokeswoman for the New Jersey department, declined to confirm or deny that the department on Wednesday had demanded that the Los Angeles-based life insurance holding company make the huge deposit.

However, a resolution passed Thursday by the NAIC, the organization of state insurance commissioners, confirmed that New Jersey had made the demand. The resolution strongly condemned it. The resolution, a copy of which was obtained by The Times, said First Executive’s life insurance subsidiaries “are in no imminent danger,” and said the New Jersey request “is counter to all objective and technical analysis” performed by a special NAIC committee set up to monitor First Executive. The NAIC was holding a regular quarterly meeting in Louisville, Ky.

In a statement, First Executive said: “We are confident that New Jersey, like every other state which has carefully reviewed our financial condition, will find that ELIC (Executive Life Insurance Co., the main subsidiary) is financially capable of meeting all obligations to policyholders of all states.”

First Executive has been in serious financial trouble because of the company’s heavy investments in junk bonds in the 1980s. On Monday, it announced that it was rescheduling payments on some of its debt and was halting dividend payments on $1.1 billion of preferred stock.

But insurance regulators in California, New York and other states have said First Executive’s life insurance units remain sound, with sufficient reserves to meet potential claims. The units are closely monitored by state regulators and are required to maintain large reserves, so that if the parent company were to fail, the insurance units would remain viable.

Executive Life and another subsidiary, Executive Life of New York, both do business in New Jersey. A source said the demand for a $500-million deposit covered both subsidiaries.

Frederick Townsend, a principal of the insurance analysis firm Townsend & Schupp in Connecticut, said a cease-and-desist order in New Jersey by itself would have little effect on First Executive. Because of adverse publicity over the firm’s financial problems, the company has been writing little new business. Townsend said the total new business it wrote in New Jersey for the first nine months of this year amounted only to $7.6 million in policy premiums.

But regulators in other states were said to be fearful that publicity about New Jersey’s action might prompt a national panic by Executive Life policyholders who might rush to redeem their policies.