What Is Underwriting?
The process by which an investment bank or securities firm agrees to purchase new securities from an issuer and sell them to the public, bearing the risk of any unsold inventory. In firm commitment underwriting, the underwriter buys all securities upfront; in best efforts, it sells as much as it can. Underwriters earn fees and potential profit from the spread between acquisition and selling prices.
Underwriting across 9 exams
Underwriting appears on the following exams. Each defines it in the context candidates are tested on:
- SIE
- The process by which an investment bank or securities firm agrees to purchase new securities from an issuer and sell them to the public, bearing the risk of any unsold inventory. In firm commitment underwriting, the underwriter buys all securities upfront; in best efforts, it sells as much as it can. Underwriters earn fees and potential profit from the spread between acquisition and selling prices.
- Life Insurance
- The process by which an insurer evaluates an applicant's risk—based on health, age, lifestyle, and other factors—to decide whether to issue a policy and at what premium rate.
- Property & Casualty
- The process by which an insurer evaluates a risk to decide whether to accept it and at what premium. It determines eligibility and pricing.
- Health Insurance
- The insurer's process of evaluating an applicant's risk to decide whether to issue coverage and at what premium rate.
- Series 24
- The process by which a broker-dealer helps an issuer bring new securities to market, often committing to buy the shares and resell them to the public. Supervising this activity is a core Series 24 responsibility.
- Series 79
- The process by which an investment bank purchases securities from an issuer and resells them to investors, assuming the risk of distribution in a firm-commitment offering.
- Personal Lines
- The process by which an insurer evaluates an applicant's risk to decide whether to issue a policy and at what premium and terms. Underwriters use factors like claims history, property condition, and location.
- Health-Only Insurance
- The process by which an insurer evaluates an applicant's risk to decide whether to issue coverage and at what premium. It relies on health history, applications, and sometimes medical exams.
- Limited Lines
- The insurer's process of evaluating risk to decide whether to accept an applicant and, if so, at what premium and terms.