Kenney Rule

The Kenney Rule, introduced in 1985, was an important and innovative measure taken by the insurance industry which aimed to provide further protection for their policyholders and shareholders. It was designed to ensure that the policyholders and shareholders were both protected by stipulating the balance of two key reserves: unearned premiums to policyholders' surplus.

The Kenney Rule stipulates that insurance companies must maintain a two-to-one ratio of policyholders' surplus to unearned premiums. In other words, it requires that for every dollar of unearned premiums, there must be two dollars of policyholders' surplus. The purpose of this rule is to ensure that insurance companies have sufficient assets to cover any potential liabilities. This means that if the company experiences a loss that exceeds the amount in its unearned premiums reserve, it will have the assets to pay its policyholders.

The Kenney Rule provides clear guidelines to insurers and ensures that they have sufficient assets to cover potential losses. This helps to provide protection to policyholders and shareholders, as it ensures that if insurers are unable to meet a claim, they are unlikely to default on their payment obligation to policyholders or shareholders.

By setting a target of unearned premiums to policyholders' surplus of a two-to-one ratio, the Kenney Rule helps to protect both policyholders and shareholders. It encourages insurers to maintain a strong financial position, which in turn protects both the insurer and its customers. The rule also helps to provide assurance to the public that insurers are unlikely to experience significant financial problems. The Kenney Rule has become an important part of the insurance industry, helping to ensure that policyholders and shareholders are adequately protected.