Underwriting

Information about Underwriting

Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the process of providing access to their product like providing equity capital, insurance or credit to a customer. The name derives from the Lloyd's of London insurance market in London, United Kingdom. Financial bankers, who would accept some of the risk on a given venture (historically a sea voyage with associated risks of shipwreck) in exchange for a premium, would literally write their names under the risk information which was written on a Lloyd's slip created for this purpose.

In banking, underwriting is the 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. Underwriting can also refer to the purchase of corporate bonds, commercial paper, Government 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.

Securities underwriting

Securities underwriting is the way business customers are assessed by investment houses for access to either equity or debt capital.

This is a way of placing a newly issued security, such as stocks or bonds, with investors. A syndicate of banks (the lead-managers), underwrite the transaction, which means they have taken on the risk of distributing the securities. Should they not be able to find enough investors, then they end up holding some securities themselves. 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.

League tables

Underwriting activity reported in Thomson Financial League Tables ([1]) (numbers in $ billion) (number of issues in parenthesis):

Global Debt, Equity & Equity-related

Year	Underwriting Activity	Source
2004	5,693 (20,066)	Q4 2004 report
2003	5,326 (19,706)	Q4 2003 report
2002	4,257 (14,070)	Q4 2002 report
2001	4,112 (NA)	Q4 2002 report

Insurance underwriting

Underwriting may also refer to insurance; insurance underwriters evaluate the risk and exposures of the prospective clients. They decide how much coverage the client should receive, how much they should pay for it, or whether to even accept the risk and insure them. Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk. The function of the underwriter is to acquire—or to "write"—business that will make the insurance company money, and to protect the company's book of business from risks that they feel will make a loss.

In simple terms, it is the process of issuing insurance policies.

Each insurance company has its own set of underwriting guidelines to help the underwriter determine whether or not the company should accept the risk. The underwriters can either decline the risk, or may decide to provide a quotation in which the premiums have been loaded, or in which various exclusions have been stipulated, which restrict the circumstances under which a claim would be paid. Depending on the type of insurance product (line of business) insurance companies use automated underwriting systems to encode these rules, and reduce the amount of manual work in processing quotations and policy issuance. This is especially the case for certain simpler life or personal lines (auto, homeowners) insurance.

Manual underwriting

Much like it sounds, this type of underwriting is based on the loan officer's personal review of your request as opposed to relying solely on software analysis ("automated underwriting").

Typically used for cases involving complex risk (e.g. industrial or commercial property; casualty, engineering or marine insurance; property loans), this case-by-case approach is usually required to evaluate the risk.

Other

Underwriting may also refer to financial sponsorship of a venture, and is also used as a term within public broadcasting (both public television and radio) to describe funding given by a company or organization for the operations of the service, in exchange for a mention of their product or service within the station's programming. For more on underwriting in public broadcasting, please see underwriting spot.

External links

Lloyd's of London is a British insurance market. It serves as a meeting place where multiple financial backers or “members”, whether individuals (traditionally known as “Names”) or corporations, come together to pool and spread risk.
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London
Canary Wharf is the centre of London's modern office towers
London shown within England
Coordinates:
Sovereign state United Kingdom
Constituent country England
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Motto
"Dieu et mon droit" ^[2] (French)
"God and my right"
Anthem
"God Save the Queen" ^[3]
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Five for one is a reference in William Shakespeare's The Tempest to a traveller's insurance practice conducted in medieval England.

Origin

Because merchant-adventurers sailing from the Kingdom of England would usually not return, they could deposit money with an
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This article or section needs copy editing for grammar, style, cohesion, tone and/or spelling.
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This article has been tagged since August 2007.
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bank is a commercial or state institution that provides financial services , including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit.
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Credit is the provision of resources (such as granting a loan) by one party to another party where that second party does not immediately pay the first party for the resources in full, thereby generating a debt, and instead arranges either to pay for or to return those resources
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A loan is a type of debt. All material things can be lent but this article focuses exclusively on monetary loans. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the and the .
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Financial statements (or financial reports) are formal records of a business' financial activities. These statements provide an overview of a business' profitability and financial condition in both short and long term.
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Credit history or credit report is, in many countries, a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy.
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A corporate bond is a bond issued by a corporation. The term is usually applied to longer-term debt instruments, generally with a maturity date falling at least a year after their issue date. (The term "commercial paper" is sometimes used for instruments with a shorter maturity.
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Commercial paper is a money market security issued by large banks and corporations. It is generally not used to finance long-term investments but rather to purchase inventory or to manage working capital.
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A commercial bank is a type of financial intermediary and a type of bank. Commercial bank has two possible meanings:

Commercial bank is the term used for a normal bank to distinguish it from an investment bank.

This is what people normally call a "bank".

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In accountancy, an account is a label used for recording and reporting a quantity of almost anything. Most often it is a record of an amount of money owned or owed by or to a particular person or entity, or allocated to a particular purpose.
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security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities, such as bonds and debentures, and equity securities, e.g. common stocks. The company or other entity issuing the security is called the issuer.
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The underwriting spread is the money difference between the amount paid by the underwriting group in a new issue of securities and the price at which securities are offered for sale to the public.
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Trading account assets refer to a separate account managed by banks that buy (underwriting) U.S. government securities and other securities for their own trading account or for resale at a profit to other banks and to the public, rather than for investment in the bank's own
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Thomson Financial's standard league tables are rankings of Investment Banks in terms of the dollar volume of deals they work on. New standard league table sessions in compliance with 2004 league table criteria for Debt, Equity, Syndicated Loans, Project Finance and M&A are
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An Insurance contract determines the legal framework under which the features of an insurance policy are enforced. Insurance contracts are designed to meet very specific needs and thus have many features not found in many other types of contracts.
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sponsor something is to support an event, activity, person, or organization financially or through the provision of products or services. A sponsor is the individual or group that provides the support, similar to a benefactor.
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Public broadcasting is a form of public service broadcasting (PSB) intended to serve the diverse needs of the viewing or listening public. Except for the United States, it has traditionally been the dominant form of broadcasting in much of the world.
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An underwriting spot is an announcement made on public broadcasting outlets, especially in the United States, in exchange for funding. These spots usually mention the name of the sponsor, and can resemble traditional advertising in commercial broadcasting, but there are
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Investment banks help companies and governments (or their agencies) raise money by issuing and selling securities in the capital markets (both equity and debt).

Almost all investment banks also offer strategic advisory services for mergers, acquisitions, divestiture or other
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Predictive analytics encompasses a variety of techniques from statistics and data mining that process current and historical data in order to make “predictions” about future events.
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Medical underwriting is an insurance term referring to a requirement of a medical background check to qualify for coverage (typically for life or health insurance).

Health insurance underwriting