Underwriting has its origins in the insurance industry, where it entailed assuming risks connected to potential losses. The term underwriting is believed to have been initially associated with Lloyd’s of London, the leading insurer at that time. During the early days of maritime expansion, Lloyd’s would accept premiums in exchange for taking on risks such as shipwrecks and the subsequent loss of cargo or crew members. Those paying the premiums would inscribe their names beneath the text describing the specific possession or event for which Lloyd’s was assuming some risk. This practice led to the term ‘written under’ or ‘underwriting.

Today, underwriting extends beyond insurance and plays a crucial role in various financial sectors, including investment banking, the equity markets, and debt security trading. In investment banking, underwriting involves raising capital from investors in the form of equity or debt securities. In practice, investment banks may buy the securities from an issuing company for a negotiated price and promote them to investors, thereby profiting from the spread between the ask and bid price. Underwriters help issuers navigate the sale and marketing of securities to the public and in doing so, provide protection against adverse responses in the issuance of their security…