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underwriter

An underwriter is an institutional financial organization that assesses and assumes another party’s risk for a fee. Underwriters operate in the context of (1) securities offerings and (2) insurance .

(1) In the context of securities offerings, an underwriter markets and sells an issuer’s securities. Section 2(a)(11) of the Securities Act defines an underwriter as “any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking.” 

The underwriter may purchase the securities from the issuer outright and conduct the primary offering , in what is termed a firm commitment offering. They may alternatively use their best efforts to assist the issuer in selling the offering. Infrequently, the issuer may sell directly to the primary market in a direct public offering . In most public offerings, however, the underwriter plays a major role in gauging market interest, setting the offering price, and marketing the securities. Due to their integral role in conducting the offering, underwriters may be liable for securities fraud unless they can establish a due diligence defense . 

(2) In the context of insurance, an underwriter analyzes the risks associated with insuring a person or asset and offers to assume those risks in exchange for a fee, i.e. issue an insurance policy.

[Last reviewed in January of 2022 by the Wex Definitions Team
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