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The Role of Underwriters in Corporate Finance

A special type of insurance company, called underwriters, deals only with other insurance companies. They analyze applications for insurance, determine the degree of risk and associated costs with issuing insurance, and determine eligibility and price. Some insurance companies have their own internal underwriting departments, while others outsource to external companies that specialize in just underwriting.

Banking underwriters are slightly different in that they assess the risk and potential of loan applicants to pay back their loans. They assist banks in determining what interest rate to charge and whether applicants are even eligible for a loan.

Securities underwriters assess the value of a particular organization or other asset for which securities are being issued.

In other words, if a company wanted to become a corporation, one step in that process would be to determine the value of the company, the number of shares to issue, and the amount of money the company is liable to raise and to help with the distribution and sale of the original shares of stock to raise money for the company to become a corporation.

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