Underwriting is the process of evaluating and minimizing the risks associated with financial transactions. It involves analyzing data about the client or insurance object to determine the likelihood of losses and make a decision on whether to enter into an insurance contract. Underwriting is widely used in various industries, including banking, insurance, and securities issuance, where it plays a crucial role in reducing risk for companies.

Underwriting serves several important functions. Firstly, it helps to analyze the risks of the project. Experts assess the client's financial situation or the potential for losses for the insurance company. Secondly, underwriting predicts the consequences of potential risks. Based on this analysis, the underwriter makes a decision to proceed with the transaction or to reject it.

Types of underwriting:

  • Bank underwriting: This involves assessing the creditworthiness of individuals and legal entities, including checking their credit history, income level, and collateral.
  • Insurance underwriting: This process evaluates the risks associated with insured objects such as homes, cars, or health, to calculate insurance premiums.
  • Underwriting in the securities market: Companies undergo underwriting in the securities market when they prepare for the issue of shares or bonds. This process involves assessing their financial condition and the risks for investors.

In banking, underwriting helps determine the creditworthiness of customers before issuing a loan. The underwriter analyzes factors such as income, credit history, and collateral to evaluate the risks associated with the loan. If the risks are minimal, the loan is approved for the client. However, if the risks are high, the underwriter may offer less favorable terms or refuse the transaction altogether.

In insurance, underwriting helps you calculate insurance premiums and assess possible risks. This process helps insurers protect their clients and minimize losses.