Underwriting

Underwriting is one of the most important functions in the financial world wherein an individual or an institution undertakes the risk associated with a venture, an investment, or a loan in lieu of a premium. Underwriting in capital markets and insurance is a term that technically means a bank, broker or insurance company absorbs the risks presented by a financial product. In former times, in capital markets, underwriters would underwrite -- i.e. buy on their own account -- any securities unsold in a securities offering. These were referred to as bought deals. This is still done regularly in block trades. However most securities offerings are now undertaken on a best-efforts basis, meaning the risk remains with the seller