One Response to “what does underwriting mean? two different definitions?”

1. Mr Knowall .C. All Says:
   January 8th, 2010 at 8:43 am

   One is right (securities)- In a wide terms of reference, the other is ambiguous to say the least( loan)

   Basically-

   (a) Goods were shipped to far away lands- the Manifest or other document or note would be sent buy runners to LLoyds office touting the wharves for Business-(for commission)

   A Line drawn on such a document would would be applied – anything above the Line defined the goods or product being insured , the mark under the line is the endorsement carrying the issurers obligations – for a Fee. Thus we are not talking about “Collateral” , but simply a payment of a fee- the “premium” paid , provides the insured person protection against the whole cargo against Loss- based soley on the “fee” amount paid-

   The Ship owner holds the goods as “Collateral” defined as a “lien” in where the ship owner woud not release the cargo to the named person at port of unloding until carriage was paid for – thus” freight”-

   Give me a fee, and I will insure your goods- Thus Under writing defines the application use of one who “Writes under the line” a form of endorsement protecting the goods or services of the named person above the line-

   Later as LLoyds business grew- more and more ‘investors’ were called in-( Called: The Names) in where each were responsible to payout a little for anothers total insured loss, for a share of the “fee” as the burden of protection being requested became too big for one person to cover in the event of a “disaster-” thus applying that the insurer was simply ” spreading” any potential loss over a larger group of ” shareholders”-

   (b) Thus although simply implied above , one can see that traditions of hundreds of years are applied to “underwriting” in protecting a person insured product agaisnt loss-”LLoyds of London” was a leading innovator in creating such an application as we know it today-(Also See: research – L.O.I : Letter of Indemnity)

   Thus-Today:

   (a) A person such as a Broker or Agent “Acting on behalf of a disclosed Principal” touts for and seeks clients – offering them protection against loss in the form of insurance- for a fee-(Premium)

   The “broker’ issued policy is underwritten by the enitity actually providing “protection”- for a fee. Once the “fee” or premium is paid , the broker is entitled to a commission from his principal based upon a percentage of such a fee- The broker is paid , and washes his hands of the whole matter as it is related to goods/services being insured for-but no so as per perpetuity of commission paid – as the ” underwriter” now has a new client , paying fee’s as needed or required thanks to the broker- to which commission is perpetually paid , albeit at a lower rate, until the client looks elsewhere for better rates -

   Broker finds another new clients and the whole process starts again-

   The broker could be a private person, or even a corprate entity acting as an smaller insurance company on their own – or so it seems-

   A “broker” could be dressed up to look like a high powered dealer or trader or whatever-(Stock broking firms) but at he end of the day – he or she is just that – a “Person who is able to find new customers , for commissions”- and entity of limited power, unable to delgate others to do the same for lack of specific authority- and has no part in the protection being offered so long as he acted strictly in accordance with his “Mandate ship ” as held with his principal-

   The Principal may use a 100 brokers, but he broker or agent cannot delgate his own powers further- But a Broker who then moves forward and become registered as a Corprate entity then such an entity could use 100 other brokers of ” Agency” as aplied to the corporate entity – in where such a corporate entity has is policies underwtiten by a prime insurer- the type of policies that a prime insurer normally does not handle-

   Un like a loan deal- the basis on providing insurance is based on a sole premises in law- “UBERRIMAE FIDEL”-
   the person seeking insurance does so on “Good faith” and discloses exacty only matters of the goods being insured- An insurer can avoid payment on a claim if its found later that the goods or service being insurred where not apparent when the premuim for such cover was paid-

   I.e: Life isnurance- Do you smoke – “No ” is the answer given to obtain a better rate of over and lower premuim- in where later when a claim is filed it is found that the person insurred did smoke for 2 years before his death- even though he has never smoked a cigarette since applying for insurance a year before , may be enough grounds to avoid a payout-

   (b) In a loan situation- the “lender “(lets use the term bank to mean lender) may borrow funds to the “borrower “-for commercial gains-Applying two exact methods of application- The innovators here are the “Merchants of Venice – 15/16 century-( See;research- Banking practices)

   Thus already we can see two diffrent protocols are in play – one involving the act of insurances companies, the other involving acts applied under banking practices-

   These application also split further into two groups, when banks become involved- One application is based of the clients credit history in where the loan is given based on the good nature of such credit history- without “collateral”-In this type of loan the bank or private lender has no vested interest in the product being purchased- A bank or private lender may have a larger entity underwiting the smaller lender a form of “Guarantee’ in being able to issue funds to the person taking out the loan- Again, for a fee and again the lender is really acting on behalf of a disclosed principal, and for what it may seem to others, the lender is simply an agent working for commission-

   Even larger Banks do this every day- in where banks pays out money to a person not their client , in where the clients bank get reinbursed accordingly- (i.e: ATM’s) Again so long as such matters of diclosures are apparent to the borrower, then the lender may indeed be a “prime” lender in where the client is answerable for defaults to such a lender or the lender may be a secondary lender – or “sub prime lender” in where again such a lender is simply earning commission to which the obligations of the borrower ultimately leads back to the prime lender-Thus this urge to earn great commission is stricly applied when One prime bank or lender is working with another, and not so strictly applied, when borkers or sub prime lenders are involved- Financial instituion are the one relaxing credit rules in times when they are flushed with cash, and the tightening of such when cash becomes scarce- This is a further valuable “mechanism” of control not so apparent to so many, exist secretly with the realm of banking practices-

   A bank making massve gains and profits in one year , can be made to legally avoid paying taxes, by ensuring losses are recorded the following year- thus by default the act of bowrrowing to high risk clients may indeed have it advantages- If lender strictly borrowed to only credit worthy customer- banks would go broke literally overnight-

   Likewise a bank holding 1 billion dollars today , in where in lets sy 20 years interest on that I billion dollars being offered to borrowers could return 3 billion dollars, then in fact the book value of those assets, of that said bank today is indeed 3 billion dollars even though such funds have yet to be realized- Such a bank could underwrite another banks obligation on a 2 billion dollar deal for a fee or part of the “action” applied to such adeal – expecially if there is a spread on time involved-

   Goverment work on the very same principle- issuing bonds today based on future date guarentteed return yet to be earned , means the added whole value to such bonds , could be sold today at a discount in where the purchaser simply waits to make gains on the full amount sometimes in the future-the underwriter in this case is the government issuing the bonds- the instrument used to underwrite the said future premium is its ” guarantee”

   In case of a loan taken out on “collateral” the above applications may in some way still be in play in some variable form or another -but there is a hugh difference in mitgating losses being applied on such a loan application- in that; just like the ship owners of old- the nature of business implies that the borrowing of funds is applying one contract and the collateral taken is given as such in another contract- both business application may seemed to be tied into each other but in fact they are not-I.e; Banks don’t sell houses, banks lend money – the nature of business applied is about lending of money- the nature of business in reagrds to selling houses belongs to the “builder”- the builder has contract with the buyer- the Buyer pays the builder the selling price- how the buyer gets the money to buy such a house has nothing to do with the builder-

   A bank deals is finance- not property defines that such collateral is not really defined as such-and can best be defined as ” security”- Property is in the “possession” of the borrower, but not its “Title” defining that the borrower’s right to “use” is one applcation in where the borrower right to dispose or resell such goods may be limited – for lack of holding “Title”

   Thus for a lender to make claim on such a “Title” and claim “possession” of the “Security”- the contract of finance in default

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