Legal Definitions - Underwriting

Definition: Underwriting is the process of taking on a risk by providing insurance coverage for it. This can include insuring things like property or a person's life. It can also refer to the act of agreeing to purchase all or part of a new issue of securities that will be offered for sale to the public.

Examples:

• When you buy car insurance, the insurance company is underwriting the risk of you getting into an accident and having to pay for damages.
• A life insurance policy is a form of underwriting, as the insurance company is taking on the risk of having to pay out a death benefit if the policyholder passes away.
• Investment banks often act as underwriters for companies that are issuing new stocks or bonds. The underwriter agrees to purchase the securities from the company and then sells them to investors.

The examples illustrate how underwriting involves assuming a risk and providing financial protection against potential losses. In the case of insurance, the underwriter is taking on the risk of having to pay out a claim if something goes wrong. In the case of securities underwriting, the underwriter is taking on the risk of having to hold onto securities that may not sell as well as expected.