underwrites

Underwrites is the third-person singular present tense of the verb underwrite. It denotes the act of assuming financial risk or guaranteeing a contractual commitment on behalf of another party, typically in exchange for a fee or premium. The term is used in several financial contexts, including insurance, capital markets, lending, and philanthropy.

In insurance, underwriting is the process of evaluating the risk presented by a prospective insured and determining whether to provide coverage, as well as the terms, conditions, and premium. Underwriters assess factors such as health, age, location, or property characteristics to ensure prices reflect risk and to maintain insurer solvency. They may also set limits, exclusions, and policy wording before approval.

In capital markets, underwriting refers to securities issuance where an underwriter or underwriting syndicate guarantees the sale of new stocks or bonds. The underwriter buys the issue from the issuer and sells it to investors, bearing the risk of unsold inventory in a firm commitment arrangement. In a best efforts arrangement, the underwriter acts as an intermediaries without guaranteeing the entire issue. Underwriting spreads compensate underwriters for their services, and post-issuance price stabilization may occur to support the issue.

In lending, mortgage underwriting involves verifying the borrower’s creditworthiness and the value of the collateral property. The underwriter reviews income, assets, employment, and appraisal results to approve or conditionally approve a loan.

Beyond finance, underwriting can also mean providing sponsorship or financial support for events, programming, or projects, effectively underwriting costs on behalf of a sponsor.