what do underwriters do 
underwriters play a critical role in many industries in the financial world including the mortgage industry the insurance industry equity markets and some common types of debt securities trading an individual in the position of a lead underwriter is sometimes called a book runner modern day underwriters play a variety of roles depending on the industry in which they work in general underwriters are tasked with determining the level of risk involved in a transaction or other kind of business decision risk is the likelihood that an outcome or investment s actual gains will differ from an expected outcome or return investors rely on underwriters because they determine if a business risk is worth taking underwriters also contribute to sales type activities for example in an initial public offering ipo the underwriter might purchase the entire ipo issue and sell it to investors an ipo is a process through which a previously privately owned company sells its shares on a public stock exchange for the first time 1history of underwritersthe term underwriter first emerged in the early days of marine insurance shipowners sought insurance for a ship and its cargo to protect themselves if the boat and its contents were lost shipowners would prepare a document that described their ship and its contents crew and destination an agreed upon rate and terms were set out in the paper businesspeople who wished to assume some obligation or risk would sign their name at the bottom and indicate how much exposure they were willing to accept these businesspeople became known as underwriters 2types of underwritersthe most common type of underwriter is a mortgage loan underwriter mortgage loans are approved based on a combination of an applicant s income credit history debt ratios and overall savings 3mortgage loan underwriters ensure that a loan applicant meets all of these requirements and they subsequently approve or deny a loan underwriters also review a property s appraisal to ensure that it is accurate and that the home is worth the purchase price and loan amount mortgage loan underwriters have final approval for all mortgage loans loans that aren t approved can go through an appeal process but the decision requires overwhelming evidence to be overturned according to the u s bureau of labor statistics employment of insurance underwriters is projected to decline 4 from 2021 to 2031 4insurance underwriters like mortgage underwriters review applications for coverage and accept or reject an applicant based on risk analysis insurance brokers and other entities submit insurance applications on behalf of clients and insurance underwriters review the application and decide whether to offer insurance coverage insurance underwriters advise on risk management issues determine available coverage for specific individuals and review existing clients for continued coverage analysis 5underwriters administer the public issuance and distribution of securities in the form of common or preferred stock from a corporation or other issuing body in the equity markets perhaps the most prominent role of an equity underwriter is in the ipo process ipo underwriters are financial specialists who work closely with the issuing body to determine the initial offering price of the securities buy the securities from the issuer and sell the securities to investors via the underwriter s distribution network ipo underwriters are typically investment banks that have ipo specialists on staff these investment banks work with a company to ensure that all regulatory requirements are satisfied to gauge interest in the investment the ipo specialists contact a large network of investment organizations such as mutual funds and insurance companies the amount of interest received by these large institutional investors helps an underwriter set the ipo price of the company s stock the underwriter also guarantees that a specific number of shares will be sold at that initial price and purchase any surplus 1underwriters purchase debt securities such as government bonds corporate bonds municipal bonds or preferred stock from the issuing body usually a company or government agency to resell them for a profit this profit is known as the underwriting spread an underwriter may resell debt securities directly to the marketplace or to dealers who will then sell them to other buyers when the issuance of debt security requires more than one underwriter the resulting group of underwriters is known as an underwriter syndicate 6