Underwriter definition
/What is an Underwriter in Finance?
An underwriter is a securities specialist that buys bonds and stocks when they are first issued, and resells them to the investing public. An underwriter takes on the risk of securities placement from issuers, and profits by marking up the securities prior to their sale to the public. The underwriter charges a significant fee to the issuer for this service. The distribution of securities may not be an especially risky endeavor for an underwriter, since it usually has a network of buyers already in place, and so can sell securities with only a minimal holding period. Underwriters frequently band together in syndicates when an especially large securities offering needs to be sold; doing so spreads the risk and also accesses a larger group of potential buyers.
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What is an Underwriter in Insurance?
In the insurance field, an underwriter evaluates insurance proposals to determine the amount of risk associated with them, and sets coverage amounts and insurance premiums based on this perceived risk level. In cases where the perceived risk level is too high, an insurance underwriter may elect not to sell an insurance policy to a prospective client at all.
An insurance underwriter usually specializes in a single line of insurance, given that a great deal of knowledge and experience is required to understand a single type of insurance to a degree that will keep an insurer from incurring excessive losses.