What types of underwriters are there?
There are three major types of underwriters. They essentially all do the same thing: determine risk and how much it’s worth to their company. The most common is the mortgage underwriter. Their job is to determine the size of the risk posed by a borrower, whether for a home purchase or a commercial real estate parcel. They determine if the borrower is creditworthy and set a mortgage rate to compensate for the risk they represent.
Another well-known underwriter is the insurance underwriter. Like the mortgage underwriter, the insurance underwriter determines the risk of someone filing a claim and the potential cost to a company. The insurance underwriter then bases the premiums on that risk.
A securities underwriter comes in a few different flavors, but is still heavily involved in risk management. Some underwriters work with investment banks to facilitate IPOs, often helping to set the initial price for stocks. Other underwriters do the same thing with bonds or preferred stocks. In both cases, the underwriter is working for an investment bank or other institution that can buy and resell these different securities, with the aim of making a profit through risk mitigation (in these cases, it’s the risk that they won’t be able to resell the securities that’s being mitigated).
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