What is Underwriting?
Underwriting is utilized to evaluate the eligibility of a customer to receive some type of “financial product”. It is a process used to assess the qualification of a customer to receive financial product such as, but not limited to equity capital, insurance, mortgage, or credit. How is underwriting performed? An evaluation process is carried out through which the financial entity determines if the transaction can ultimately yield profit in return for financial assistance.
Who is an Underwriter?
Let us take a look at the historic emergence of the term “underwriter” for us to better understand the concept. The term was coined based on the tradition of Lloyds of London. Lloyds of London is a British insurance and reinsurance market. It played an important and historical role as an insurer in London which used to provide insurance for ocean bound ships. Sea faring is replete of inherent risks but it is an important undertaking nevertheless to ensure the growth of trade and commerce. Lloyds by virtue of agreements took responsibility for the risks of sailing in exchange for a set premium paid by ship owners. Another form of remuneration is a stake in the profit of the voyage. The party that serves as the “backer” would sign directly “under” the identified risks. Thus the term underwriter was born.
Contemporarily, an underwriter is a person (or firm) who assumes financial risk on behalf of another. Underwriters consider the risks associated with the applicant. An underwriter receives special terms in exchange for its services. The aforementioned terms can come in various forms. Usually, an underwriter is granted a financial stake in the thing which the company agrees to underwrite.
Where is Underwriting Practiced Today?
The term is practiced in a number of industries. It can be observed by an insurance company or an investment bank to name a few. It is utilized in the field of insurance, mortgage, and in project financing among others. Today, there are several underwriting jobs available for job seekers to choose from. Below are just some of the underwriting positions available:
Insurance underwriting – here, an underwriter must evaluate the risk as well as exposure of potential clients. The function includes measurement of risk exposure and the determination of the premium to be charged to insure risk. Collectively, these can be summed up as functions incidental to issuance of insurance policies.
Bank underwriting –an underwriter for this position must make a detailed credit analysis through the in-depth study of credit information from the borrower as well as publicly available information. The analysis is vital to determine whether or not the loan can be granted.
Securities underwriting – securities underwriting covers the sale of newly issued security to investors. Here, underwriters take on the risk of “distributing” the securities. They will hold some securities themselves in the absence of enough investors. They generate income from the price difference between the price they paid the issuer and what they collect from investors.
There are other underwriting jobs such as real estate underwriting, sponsorship underwriting, and forensic underwriting. Real estate underwriting involves the evaluation of real estate loans through assessment of the borrower and the property involved. Sponsorship underwriting involves the financial sponsorship of a venture. It is determined whether or not funding must be extended by the company for the venture in exchange for certain remunerations such as corporate exposure. Forensic underwriting is a process used to determine flaws within a mortgage. This position calls for a knack in problem solving and modification to rectify flaws (or potential flaws). People who are knowledgeable in multiple facets of real estate are preferred for this position.
The need for workers engaged in underwriting jobs shall remain constant while there are companies or institutions prudent in their undertakings. Log on to UnderwritingCrossing.com if you feel like you have the qualifications to become a successful underwriter! Sign up for a risk-free trial at UnderwritingCrossing.com and enjoy access to thousands of underwriting job listings available. UnderwritingCrossing.com is a comprehensive site that gives you all the necessary job information you need. Learn more and forge an optimistic opinion on underwriting jobs at UnderwritingCrossing.com!
