Updated: 2006-10-13 14:06

Definition 1

An intermediary between an issuer of a security and the investing public, usually an investment bank.

Definition 2

An issuer of insurance policies.

In terms of investment, it means a company or other entity that administers the public issuance and distribution of securities from a corporation or other issuing body. An underwriter works closely with the issuing body to determine the offering price of the securities, buys them from the issuer and sells them to investors via the underwriter's distribution network.

Underwriters generally receive underwriting fees from their issuing clients, but they also usually earn profits when selling the underwritten shares to investors. However, underwriters assume the responsibility of distributing a securities issue to the public. If they can't sell all of the securities at the specified offering price, they may be forced to sell the securities for less than they paid for them, or retain the securities themselves.

In insurance, underwriter is a company that assumes the cost risk of death, fire, theft, illness, etc., in exchange for payments, called premiums.

Also as a marketing term, underwriter refers to sponsor of an event, program, or project whose contribution covers either all or a major portion of the expenses. An event underwriter may be a title sponsor who has the project named after them, such as the Virginia Slims Tennis Tournament or the Pepsi Center. An underwriter has substantial control over the event or project and over the participation and visibility of lesser contributors. Nonprofit organizations rely upon underwriters to support many events and programs but must give up some of their independence in exchange.

While in real estate, an underwriter is one who insures another or takes certain Risks. In Mortgage lending, the one who approves or denies a loan based on the property and the applicant. In securities, it is the Broker that sells the issue and, unless sold on a "best efforts" basis, agrees to purchase the shares not bought by the public. Example: The underwriter analyzed the loan submission package carefully, because she didn't want her firm to accept excessive risk.

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