underwrite

To underwrite is to assume financial risk in exchange for a fee, typically by agreeing to cover potential losses or provide funding in certain transactions. The term applies across a range of financial sectors and generally refers to the process of evaluating, pricing, and assuming risk with the expectation of earning a return. Broadly, underwriting involves a party (usually a financial institution) agreeing to bear specific financial risks, such as those associated with loans, insurance policies, or securities offerings. For example:

In lending, underwriters assess the creditworthiness of borrowers and assume the risk that loans may not be repaid, in exchange for interest payments.
In insurance, underwriters evaluate the likelihood of claims and accept the risk of paying for covered losses, with the expectation that premiums collected will exceed payouts.
In securities, underwriters (often investment banks) take on the risk of selling stocks or bonds to the public. In the case of an initial public offering (IPO), an underwriter may purchase securities from a company and resell them to investors, aiming to profit from the markup or underwriting spread.

[Last reviewed in June of 2025 by the Wex Definitions Team]

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