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. Asset

    1. A resource with economic value that an individual, corporation ...
  3. Liability

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

    A protection against the loss of income that would result if ...
  5. Noncancellable Insurance Policy

    A life or disability insurance policy that an insurance company ...
  6. Concurrent Periods

    A period of time in which more than one injury or disability ...
Related Articles
  1. Industry Handbook
    Investing Basics

    Industry Handbook

  2. 15 Insurance Policies You Don't Need
    Insurance

    15 Insurance Policies You Don't Need

  3. 6 Retirement Savings Tips For 45- To ...
    Savings

    6 Retirement Savings Tips For 45- To ...

  4. 9 Penalty-Free IRA Withdrawals
    Taxes

    9 Penalty-Free IRA Withdrawals

Hot Definitions
  1. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  2. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  3. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  4. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  5. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  6. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
Trading Center