What Is Underwriting?

Underwriting is the procedure through which an individual or organization takes on monetary risk for a fee. The risk most usually includes loans, insurance, or investments. The term underwriter coined from the rehearsal of having each risk-taker write their name under the total quantity of risk they were eager to receive for a indicated premium. Although the mechanism have changed over time, underwriting lasts today as a key task in the financial world.

The Basics of Underwriting

Underwriting involves accompanying research and evaluating the degree of risk of each applicant or entity before supposing that risk. This check helps to set reasonable borrowing rates for loans, founds appropriate premiums to adequately cover the true cost of assuring policy holders, and generates a market for securities by precisely pricing investment risk. If the risk is believed too high, an underwriter may decline coverage.