Free Asset Ratio - FAR

AAA

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.

INVESTOPEDIA EXPLAINS '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.




RELATED TERMS
  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. Risk Financing

    The determination of how an organization will pay for loss events ...
  6. Special Employer

    An employer who receives an employee on loan from another business, ...
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. Stock Analysis

    Freeport-McMoRan Is Seeking A Helping Hand

    Freeport-McMoRan doesn't have the cash to invest in its planned oil and gas developments, which is forcing it to look for help in funding these projects.
  7. Fundamental Analysis

    What's Fair Value?

    Fair value has three different meanings depending on the context.
  8. Investing

    Understanding Accumulated Depreciation

    Depreciation is a rough approximation, in dollar terms, of the wear and tear on an asset. So the accumulated depreciation is the aggregate of the wear and tear on the asset from all prior time ...
  9. Stock Analysis

    Chesapeake Energy Sees History Repeating Itself

    Chesapeake was on the wrong side of natural gas when its price plunged in 2012, and it appears to be repeating itself after the price of oil plummeted.
  10. Investing Basics

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...

You May Also Like

Hot Definitions
  1. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  2. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  3. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  4. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  5. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  6. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
Trading Center