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Computer science is the development, practice and testing of modern computer technology. A computer science degree is an interdisciplinary program that combines elements of computer technology with business. Completing a bachelor's degree in computer science can open the door to a wide variety of career paths in both technology and... more »
The term underwriter is used in a variety of businesses and industries, but it primarily refers to a person or firm who is responsible for assessing and assuming financial risks on behalf of another firm or individual. Underwriters work for investment banks and insurance companies, but they are also individuals who are financially... more »
To begin the underwriting process, an underwriter needs to have several pieces of information in order to provide the most accurate evaluation of a potential policyholder. This information includes the insurance application (previously completed by the customer or their insurance agent), VIN numbers (Vehicle Identification Number)... more »
The process of underwriting an insurance policy determines whether a risk is acceptable and how much premium should be charged to an individual customer. Underwriting helps an insurer balance risks and maintain finances in order to pay out claims as they occur. Learning about the underwriting process will give you a better... more »
The first step in the underwriting process for life insurance is to complete a life insurance application. This consists of multiple pages of questions, starting with contact data such as name, date of birth, Social Security number, etc. The rest of the application consists of financial and medical questions. Be sure to answer as... more »
Many countries have nationally sponsored health care for all citizens. However, in the United States, this is not the case. Instead, most... more »
The APR on a mortgage loan is the Annual Percentage Rate. The APR does not affect the monthly payment, which is calculated using the principal,... more »
Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage or credit). The name derives from the Lloyds of London insurance market. 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 that was written on a Lloyds slip created for this purpose.
Risk, exclusivity, and reward
Once the underwriting agreement is struck, the underwriter bears the risk of being able to sell the underlying securities, and the cost of holding them on its books until such time in the future that they may be favorably sold.
If the instrument is desirable, the underwriter and the securities issuer may choose to enter into an exclusivity agreement. In exchange for a higher price paid upfront to the issuer, or other favorable terms, the issuer may agree to make the underwriter the exclusive agent for the initial sale of the securities instrument. That is, even though third-party buyers might approach the issuer directly to buy, the issuer agrees to sell exclusively through the underwriter.
In summary, the securities issuer gets cash up front, access to the contacts and sales channels of the underwriter, and is insulated from the market risk of being unable to sell the securities at a good price. The underwriter gets a nice profit from the markup, plus possibly an exclusive sales agreement.
Also, if the securities are priced significantly below market price (as is often the custom), the underwriter also curries favor with powerful end customers by granting them an immediate profit (see flipping), perhaps in a quid pro quo. This practice, which is typically justified as the reward for the underwriter for taking on the market risk, is occas read more at » http://en.wikipedia.org/wiki/Underwriting
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