Underwriting

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Underwriting

Acting as the underwriter in the issue of new securities for a firm.

Underwriting

1. The process of placing a new issue with investors. Underwriting involves the issuing company using one or (usually) more companies who are each responsible for placing a certain amount of the new issue. The underwriting firms contact potential investors to gauge interest and sell the issue. Underwriters guarantee the price for a certain number of shares of the new issue. See also: Bracketing, Oversubscribed, Undersubsribed.

2. Due diligence a lender conducts to ensure that a potential borrower is able to repay the loan.

Underwriting.

Underwriting means insuring.

An insurance company underwrites your policy when it agrees to take the risk of insuring your life or covering your medical expenses in exchange for the premium you pay.

An investment bank underwrites an initial public offering (IPO) or a bond issue when it buys the shares or bonds from the issuer and takes the risk of having to sell them to individual or institutional investors to recover its investment.

underwriting

the acceptance by a financial institution of the financial risks involved in a particular transaction, for an agreed fee. For example, INSURANCE COMPANIES underwrite INSURANCE risks such as damage to property paying out monies to policy holders wholly or in part to cover bona fide claims for compensation; MERCHANT BANKS underwrite new SHARE ISSUES, guaranteeing to buy up any shares that are not sold in the open market, and BILLS OF EXCHANGE. See LLOYDS, EXPORT CREDIT GUARANTEE DEPARTMENT.

underwriting

the acceptance by a financial institution of the financial risks involved in a particular transaction for an agreed fee. For example, INSURANCE COMPANIES underwrite INSURANCE risks such as damage to property, paying out monies to policy holders wholly or in part to cover bona fide claims for compensation; MERCHANT BANKS underwrite new SHARE ISSUES, guaranteeing to buy up any shares that are not sold in the open market.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

Underwriting

The process of making a final determination on approval or rejection of a loan application.

Underwriting involves verifying the information that has been obtained from the borrower and that served as the basis for qualification, as well as assessing information on the applicant's credit worthiness.

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Purpose of Underwriting

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