Business, Legal & Accounting Glossary
A person who examines a risk decides whether or not it can be insured, and, if it can, works out the appropriate premium to be charged, usually on the basis of frequency of past claims for similar risks.
Underwriters are usually either employed by insurance companies or are members of Lloyd’s.
The name arises from the early days of marine insurance, when a merchant would, as a sideline, write his name under the amount and details of the risk he had agreed to cover on a slip of paper.
Underwriters typically work for a commission, and a number may collaborate together in order to buy all the unsold shares, provided that a minimum subscription stated in the prospectus has been sold to the public.
A person who provides a guarantee for a financial transaction.
An underwriter gives financial support and takes responsibility for paying any costs associated with the activity he or she underwrites. An underwriter is often someone in the insurance business who may assess the risks involved with enrolling an applicant for coverage or a particular policy. The underwriter must also compensate for any loss under the terms of the insurance policy. An underwriter may also serve as an intermediary between an issuer of a security and an investor. In this capacity, an underwriter buys an issue of securities from a company and resells it to the investors. As an underwriter, a person (or firm) bears the risk of selling the securities to the public and guarantees the proceeds from a sale, essentially taking ownership of the securities. If the underwriter can’t sell the securities at the asking price, the underwriter may have to sell them for less than they paid or retain the securities themselves.
They were the underwriters of the company’s shares, but only on a best efforts basis.
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This glossary post was last updated: 15th February, 2020