Kenney Rule
Categories: Financial Theory
The Kenney rule is the rule of survival for insurance companies: keep higher policyholder surplus (assets) than unearned premiums. The Kenney Rule refers specifically to this ratio of policyholder surplus to premiums.
For property insurance, the Kenney Rule says a 2-to-1 ratio is a good balance of expected earnings and assets. For liability insurance, that ratio drops to 3-to-1.
When an insurance company has higher policyholder surplus than unearned premiums (for the year), that insurance company looks pretty solvent (can pay its bills) which makes it look stable. In the eyes of investors, that means tall, dark, and handsome...so the Kenney Rule is a good rule to follow.