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An underwriter is a person or organization that assesses the risk and viability of a financial transaction, such as the issuance of a loan, insurance policy, or security.Â
The underwriter establishes the terms and circumstances of the transaction and serves as an intermediary between the issuer and the purchaser of the financial product.
The role of an underwriter varies depending on the type of financial product. For example:
In exchange for a fee or commission, an underwriter takes on a certain amount of risk. Losses could be incurred by the underwriter if the financial transaction turns out to be unprofitable or defaults. Hence, before deciding to accept a financial transaction, an underwriter conducts research and analysis.
The role of an underwriter varies depending on the type of financial product. For example:
- In lending, an underwriter reviews the creditworthiness and repayment ability of a borrower and decides whether to approve or reject a loan application.
- In insurance, an underwriter assesses the likelihood and severity of a potential loss from an insured event and sets the premium and coverage amount for an insurance policy.
- In securities, an underwriter helps a company or a government raise capital by buying securities (such as stocks or bonds) and selling them to investors.
In exchange for a fee or commission, an underwriter takes on a certain amount of risk. Losses could be incurred by the underwriter if the financial transaction turns out to be unprofitable or defaults. Hence, before deciding to accept a financial transaction, an underwriter conducts research and analysis.
