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Underwriting

Definition - What does Underwriting mean?

Underwriting is the process in which financial institutions and insurance companies evaluate risk in order to put a price on that risk. For financial institutions, this involves the assessment and pricing of securities risks. For insurance companies, this involves the assessment and pricing of insurance policies. In both cases, detailed analyses are performed.

In the context of the law, financial institutions and insurance companies are liable for the risks they assume.

Justipedia explains Underwriting

Both financial institutions and insurers need to know that they can afford the particular risk that they are taking on. For example, a bank needs to know that it can afford $2 million worth of specific securities before it purchases them. It also needs to be able to project the profits that it will make when it sells them. Similarly, insurance companies need to know that they can cover the liabilities that they take on when they sell insurance policies. In either circumstance, the underwriting process needs to be done successfully or the institution/company could lose money.

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