Life insurance is designed to assess a potential policyholder`s insurance risk based on age, health, lifestyle, occupation, family history, leisure and other factors determined by the insurer. Life insurance can lead to an authorisation – with a series of coverages, prices, exclusions and conditions – or a total refusal. Underwriting is the process by which an individual or institution assumes a financial risk for a fee. This risk usually includes loans, insurance or investments. The term underwriter applies to the practice of writing any risk under the overall risk it was willing to accept for a given premium. Although mechanics have evolved over time, underwriting continues to this day as a key function in the world of finance. Risk is the underlying factor in all underwritings. In the case of a loan, the risk is whether the borrower would return the loan as agreed or if he is late. As far as insurance is concerned, there is a likelihood that too many policyholders will assert their rights at the same time. For securities, signed investments may not be profitable. This type of acquisition may include both individual shares and bonds, including government, corporate or common bonds. Underwriter or their employers buy these securities and resell them profitably either to investors or to merchants (who sell them to other buyers). If there is more than one underwriter or group of underwriters involved, this is called an underwriter union.
The offering of securities, which is intended to assess the risk and reasonable price of certain securities – most often when it comes to an IPO – is done on behalf of a potential investor, often an investment bank. Based on the results of the underwriting process, an investment bank would buy (sign) securities issued by the company that is attempting to go public and then sell these securities on the market. The most common type of debt financing, which involves a human subsystem, is for mortgages. It`s also the type of credit underwriting that most people encounter. The insurer assesses an individual`s income, liabilities (debt), savings, credit history, credit score and more based on a person`s financial situation.