Free Asset Ratio - FAR


DEFINITION of 'Free Asset Ratio - FAR'

A metric used to determine whether an insurance company has sufficient free capital to fully cover its financial obligations. The free asset ratio (FAR) is calculated by subtracting the required minimum margin of solvency from available assets and dividing this figure by admissible assets. The higher the FAR, the better the capacity of the insurer to cover its policy liabilities and other obligations.

BREAKING DOWN 'Free Asset Ratio - FAR'

Free asset ratios furnished by different insurance companies may not always be comparable, as they may use differing assumptions and interpretations in calculating free assets and valuing liabilities. Nevertheless, a high FAR would generally indicate a strong financial position and surplus capital, while a low FAR would imply a weak balance sheet and possibly a need for imminent injection of capital.

  1. Collateral

    Property or other assets that a borrower offers a lender to secure ...
  2. Life Insurance

    A protection against the loss of income that would result if ...
  3. Liability

    A company's legal debts or obligations that arise during the ...
  4. Asset

    1. A resource with economic value that an individual, corporation ...
  5. Adjusted Gross Income - AGI

    A measure of income calculated from your gross income and used ...
  6. Audit

    An unbiased examination and evaluation of the financial statements ...
Related Articles
  1. Investing Basics

    Industry Handbook

    In this feature, we take an in-depth look at the various techniques that determine the value and investment quality of companies from an industry perspective.
  2. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  3. Savings

    6 Retirement Savings Tips For 45- To 54-Year-Olds

    Now is the time to kick savings into high gear. Find out how.
  4. Taxes

    9 Penalty-Free IRA Withdrawals

    If you need to take early distributions, find out which exemptions allow you to avoid expensive consequences.
  5. Retirement

    Variable Vs. Variable Universal Life Insurance

    Do you know why you might need one policy versus the other? Read on to find out.
  6. Insurance

    How to Choose Permanent Life Insurance Policies

    When does it makes sense to buy a guaranteed rather than a non-guaranteed life insurance policy?
  7. Stock Analysis

    Analyzing Home Depot's Return on Equity (ROE)

    Discover what Home Depot's return on equity (ROE) ratio says about the performance of the company and how it relates to historical averages and industry trends.
  8. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.
  9. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  10. Insurance

    Avoiding The Modified Endowment Contract Trap

    To avoid MEC status, flexible-premium policies must cap the amount that can be paid into the policy over a period of seven years.
  1. Does renters insurance cover personal injuries?

    Renters insurance provides two main forms of coverage – liability and contents insurance – and they are offered together ... Read Full Answer >>
  2. Does renters insurance cover jewelry?

    Renters insurance provides personal property coverage that covers your personal property – including jewelry – in case of ... Read Full Answer >>
  3. Why might landlords require renters insurance?

    Landlords can require renters insurance to lower their own liability and insurance costs. According to data from the Insurance ... Read Full Answer >>
  4. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  5. What is the expense ratio in the insurance industry?

    The expense ratio in the insurance industry is a measure of profitability calculated by dividing the expenses associated ... Read Full Answer >>
  6. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
Trading Center