The Roles Of Underwriters


A bank provides funds to its customers and when a bank works to raise funds for a customer, it is an underwriting bank. An underwriter legally takes the responsibility of the risks and values of a company for a specified charge and secures funds for the company for various business operations. Once a deal to provide underwriting service has been agreed upon, it might be a cakewalk or a strenuous process until completion but is dominated by the number and complexity of documents to be prepared and scrutinized.

Where are the services required?

Underwriters can be consulted for services in banking, securities for a public offering, insurance, real estate, mergers and acquisitions, sponsorship etc as a whole, or for inner individual financial tasks. Take an illustrative example of my Company providing brokerage services. It can approach an underwriter for:

  • Assessing the risk for determining the prospects of obtaining a financial credit such as loan or advances, a role featured by underwriting banks, and insurance underwriters.
  • Evaluates its eligibility to get the permission of merchant accounts and Demat accounts for trade expansion, done by underwriting banks and financial service providers.
  • Evolve from a privately owned company to a publicly listed company creating IPO, mostly done by investment banks. When BTC Profit announces the selling of its securities in the public, an investment bank will be spearheading the underlying procedures.

Methods of working of an underwriter

For all the underwriting workers, their first duty is to research and gather the most accurate risk assessment of the company taken as the client. The risk includes every aspect of the business that can alter the value or status of the company in achieving the financial objective for which the underwriting is to be done. If the risk is underestimated, the underwriter and the client will be in trouble with the company going down the lane. If the risk is overestimated, it dims the chances of the client to get financial helping hands.

After assessing the risks presented by the client to the potential investors or insurers, the underwriters now have to scrutinize through due diligence and documentation for legal and regulatory compliances for qualifying for the proposed financial advancement. The underwriter can purchase the client’s offers at a fixed price and resell them to a higher price, as in firm commitment, sell the assets or shares to others on behalf of the client according to best efforts agreement or work as a syndicate.

Document preparation and risk analysis are carried out using a variety of financial tools such as credit reports, financial statements, leverage, liquidity, securities, book building etc, specifically depending on the type of underwriting performed.