Business Glossary

acceptance of risk in return for payment. In a new securities issue, the underwriter, known as the investment banker and his or her syndicate, may perform an underwriting function by purchasing the securities at a fixed price from the issuer, hoping to sell them at a higher offering price and making a profit on thespread. Underwriting is the function of investment bankers, who usually form an underwriting group, also called a syndicate to pool the risk and assure successful distribution of the issue.

Banking:<

1. detailed credit analysis preceding the granting of a loan, based on credit information furnished by the borrower, such as employment history, salary, and financial statements; publicly available information, such as the borrower's credit history, which is detailed in a credit report ; and the lender's evaluation of the borrower's credit needs and ability to pay . See also credit scoring ; corporate resolution ; loan committee ; loan policy .
2. purchase of corporate bonds, commercial paper, U.S. Treasury securities, municipal general obligation bonds by a commercial bank or dealer bank for its own account, or for resale to investors. Bank underwriting of corporate securities is carried out through separate holding company affiliates, called securities affiliates or Section 20 affiliates (taken from the section in the glass-steagall act allowing banking companies to purchase limited amounts of corporate bonds, mortgage-backed securities, and asset-backed securities for resale to investors).
   Securities: purchase of securities for resale to the public, either directly or through dealers. Underwriting of a new offering of securities is done by an investment banker, who assumes risk in bringing the issue to market by guaranteeing the issuer will receive a certain price when the offering is sold to investors. Underwriters make their income from the price difference, or underwriting spread , between the price they pay the issuer and what they collect from investors or from broker-dealers who buy portions of the offering. When a dealer bank purchases Treasury securities in a quarterly Treasury bond auction, it acts as underwriter and distributor. Treasury Securities purchased by a primary dealer are held in a dealer bank's trading account assets portfolio, and often resold to other banks, and to private investors. Other forms of underwriting are are all or none, best effort underwriting, and standby underwriting . See also dutch auction ; negotiated underwriting ; private placement ; public offering ; securities subsidiary .Insurance:agreement by an insurer to accept risk of loss from property damage, accidental death, and so on, in exchange for payment of a premium.

process of examining, accepting, or rejecting insurance risks, and classifying those selected, in order to charge the proper premium for each. The purpose of underwriting is to spread the risk among a pool of insureds in a manner that is equitable for the insureds and profitable for the insurer.