DEFINITION of 'Free Asset Ratio  FAR'
Free asset ratio (FAR) is a metric used to determine whether a life insurance company has sufficient free capital to fully cover its financial obligations. The free asset ratio is calculated by subtracting liabilities and the minimum solvency margin from admitted assets and dividing this figure by admitted 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'
For example, suppose an insurance company has admitted assets of $100 million and liabilities of $80 million. Also, suppose the minimum solvency margin is 10%. In the case of this company, that would equal $10 million.
So for this company, the free asset ratio (FAR) is:
($100 million  $10 million  $80 million)/$100 million = .10, or 10%.
Sometimes FAR is calculated without subtracting the minimum solvency amount. In this case, the FAR for this company would be 20%.
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 immediate injection of capital.

Solvency Ratio
Solvency ratio is a key metric used to measure an enterprise’s ... 
Solvency
Solvency is the ability of a company to meet its longterm financial ... 
Asset Coverage Ratio
The asset coverage ratio determines a company's ability to cover ... 
Liquidity Ratios
Liquidity ratios are a class of financial metrics used to determine ... 
Quick Liquidity Ratio
Quick liquidity ratio is the total amount of a company’s quick ... 
Adjusted Liabilities
Adjusted liabilities are used in the insurance industry to show ...

Investing
Useful Balance Sheet Metrics
These metrics can help you better understand the information found on balance sheets. 
Investing
How to calculate the current ratio in Excel
Understand the basics of the current ratio, including its use in assessing a company's liquidity and learn how it is calculated in Microsoft Excel. 
Investing
SXC Health Solutions Corp. (USA) Among the Nasdaq's Biggest Movers
The market is having a bad day so far: the Nasdaq is trading down 0.3%; the S&P 500 has declined 0.4%; and the Dow has slipped 0.5%. The Nasdaq Composite Index is a capitalizationweighted index, ... 
Investing
5 musthave metrics for value investors
In this article, we outline the five ratios that can help value investors find the most undervalued stocks in the market. 
Investing
Reviewing Liabilities On The Balance Sheet
As an experienced or new analyst, liabilities tell a deep story of how a company finances, plans and accounts for money it will need to pay at a future date.

What is the formula for calculating the current ratio?
Find out what makes up the current ratio, how to calculate it, and what the result can tell you about a potential investment. 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?
Learn more about the working capital ratio, and understand how an excessively high ratio can be considered a negative in ... Read Answer >> 
Why do shareholders need financial statements?
Discover the importance of a company's financial statements for stock shareholders in evaluating their equity investment ... Read Answer >> 
If a company has a high debt to capital ratio, what else should I look at before ...
Learn about some of the financial leverage and profitability ratios that investors can analyze to supplement examining the ... Read Answer >> 
Why are efficiency ratios important to investors?
Learn about efficiency ratios, such as the asset turnover ratio, and why these metrics are important to investors when analyzing ... Read Answer >>