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.

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What are the differences between solvency ratios and liquidity ratios?
Learn about liquidity ratios and solvency ratios, some examples of these ratios and the main difference between them. Read Answer >> 
What can I tell about a company by looking at its solvency ratios?
Learn about solvency ratios, how to calculate two solvency ratios and what solvency ratios indicate about a company when ... Read Answer >> 
Are solvency ratios more concerned with the shortterm or the longterm?
Learn what solvency is, how to use ratios to determine a company's solvency, and why solvency ratios are concerned with the ... Read Answer >> 
What is the difference between the capital adequacy ratio vs. the solvency ratio?
Understand the different applications for using the capital adequacy ratio and the solvency ratio, which are both equity ... Read Answer >> 
Can working capital be too high?
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What measures should a company take if its total debt to total assets ratio is too ...
Learn how the total debt to total assets ratio is analyzed by investors and lenders, and how a high ratio can be remedied ... Read Answer >>