underwrite

Underwrite refers to the process of evaluating and assuming financial risk on behalf of another party. It is used most often in insurance, securities, and lending. The term derives from the practice of signing under a liability commitment to guarantee coverage or payment.

In insurance underwriting, underwriters assess applicants’ risk factors, such as age, health, and lifestyle, and determine whether to insure and at what premium and coverage limits. They may classify risks, apply actuarial data, require medical tests, and decide standard, preferred, or substandard pricing. They can accept, modify, or reject applications, and may reinsure part of the risk with other companies.

In securities underwriting, an underwriter is typically an investment bank that assesses the issuer, conducts due diligence, and sets the offering price. The underwriter commits to purchase all or a portion of the issue and then resell to investors. They may form an underwriting syndicate and earn a spread. If demand is weak, they may adjust price or size to complete the sale.

In lending, underwriting evaluates creditworthiness: income, assets, job stability, debt levels, and collateral. The outcome determines loan approval, amount, terms, interest rate, and required down payment or mortgage insurance.

The practice relies on data, models, and guidelines to balance risk and pricing. Underwriting is distinct from sales, and the standards vary by product, jurisdiction, and institution. In insurance and reinsurance, risk may be ceded to reinsurers to spread exposure.