# Underwriting

Underwriting (in insurance) is a guarantee or pledge by the guarantor to provide payment in case of loss or damage to the guarantee holder. Underwriting (in corporate finance) is an agreement (typically made by an investment bank providing a service to a corporation) either (1) to buy an issue of stocks, bonds, or similar tradable corporate assets on a given date at a fixed price or (2) to guarantee the purchase of an issue of stocks, bonds, or similar tradable corporate assets that are to be made available to the public (typically in a public offering on a stock exchange). There are various forms of underwriting subject to complicated laws and legal agreements.

## Quotes

* The insurance underwriting cycle has become a touchstone in the debate over medical malpractice reform. On the one hand, trial lawyers and others who seek to preserve existing medical malpractice liability rules commonly report that the high-priced, "hard market" phase of the liability insurance underwriting cycle, and not real developments in malpractice litigation, fueled the medical malpractice insurance crises of the mid-1970s, mid-1980s, and early 2000s. ... On the other hand, medical associations and others who seek further restrictive tort reforms claim that those crises represented the long overdue consequence of escalating tort costs that the competiitve, "soft market" phase of the insurance underwriting cycle had allowed people to wish away.
** Tom Baker, "Medical malpractice and the insurance underwriting cycle." DePaul L. Rev. 54 (2004): 393.
* I don't see any reason why there should be some huge influx of people, immediately subsequent to the offering, that didn't hear about it in the offering period. ... I think most of the demand will be retail, not so much institutional. Most new offerings are done in a manner, where the idea is to have far more demand than supply and therefore cause people to maybe order stock they didn't even want — just on the idea that this restricted supply will cause a big jump the first day ... if you've seen Yahoo or a number of other offerings. Personally, I don't like that sort of distribution arrangement, because you'll find that 30 to 40 percent of the issue will perhaps trade the first day ... and perhaps at a lot higher price. I think there's something a little wrong with that kind of an offering. ... favored customers get the chance to flip the stock and really are getting paid an exorbitant underwriting fee themselves — even though they are called purchasers — because they sell it the first day.
** Warren Buffett, (June 28, 2018)"1996 Berkshire Hathaway Annual Meeting Warren Buffett Charlie Munger FULL Q&A". IDP, YouTube. (quote at 57:17 of 4:54:01, as part of an answer to a question about the offering of Berkshire B shares)
* It seems to have been about the middle of the last century when some enterprising individuals, whose names have not been handed down to posterity, realizing the disadvantages of personal suretyship, conceived the idea of forming a corporation for the purpose of going into the business of becoming surety on bonds and charging a fee for the service; for in the year 1865 the Legislature of the State of New York, by Chapter 328 of the Acts of that year, authorized the formation of corporations to guarantee the fidelity of persons holding places of public or private trust. No doubt some people were at that time desirous of forming a corporation for that purpose; and it may be that such a company was actually formed. But the first American company that ever actually transacted the business of suretyship in this country was the Fidelity and Casualty Company of New York, which was incorporated in 1876 and began business in 1879.
** Luther Eugene Mackall, The Principles of Surety Underwriting: With Annotations Giving the Law of the Several States on Important Points. Thomas & Evans printing Company. 1914.
* ... consider a firm wishing to issue securities. When firms issue securities, they hire a bank as an underwriter. The bank underwrites securities by guaranteeing a fixed amount of proceeds that the issuing firm receives when bonds are sold to investors. In addition to assuming the market risk (and potentially the risk of reputation loss as well), the underwriter also assists the issuer with documentation of the prospectus and with marketing and selling of the bond. The issuer pays a fee to the underwriter for its service which is fully paid at the time the issuance.
** Ayako Yasuda, "Relationship capital and competition in the corporate securities underwriting market." In: Wharton School Pennsylvania Working Paper. 1999.

## External links

* Encyclopedic article on Underwriting on Wikipedia
* The dictionary definition of underwriting on Wiktionary