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. |
|
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 Definitions
Articles Of Interest
-
6 Retirement Savings Tips For 45- To 54-Year-Olds
Now is the time to kick savings into high gear. Find out how. -
9 Penalty-Free IRA Withdrawals
If you need to take early distributions, find out which exemptions allow you to avoid expensive consequences. -
Variable Vs. Variable Universal Life Insurance
Do you know why you might need one policy versus the other? Read on to find out. -
15 Insurance Policies You Don't Need
Learn how to save money by saying "no" to unnecessary coverage. -
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. -
Depreciation: Straight-Line Vs. Double-Declining Methods
Appreciate the different methods used to describe how book value is "used up". -
Financial Statement: Extraordinary Vs. Nonrecurring Items
When it comes to analyzing a company, successful analysts spend considerable time differentiating between accounting items that are likely to recur going forward from those that most likely will ... -
The Basics Of A Financial Analysis Report
Running financial analysis on a company or industry is a key skill every investor must learn and understand how to undertake without which an ineffective financial report and investment recommendation ... -
GAAP And The IFRS Standards Convergence Efforts In 3 Substantial Areas
Understand the specific steps that have been taken in hopes of converging the GAAP and the IFRS accounting standards, despite the philosophically and culturally based methodological differences ... -
Beware False Signals From The P/E Ratio
The P/E ratio is a simple tool for evaluating a company, but no one ratio can tell the whole story.
Free Annual Reports