Home > West's Encyclopedia of American Law > Underwrite

To insure; to sell an issue of stocks and bonds or to guarantee the purchase of unsold stocks and bonds after a public issue.

The word underwrite has two meanings. To issue an insurance policy on the life of a person or on property of another is to underwrite that person or property; hence insurance companies are also referred to as underwriters.

The other meaning refers to the issuing of stocks or bonds by a corporation or a government agency to raise capital. The underwriter is a company, often an investment bank, that agrees to sell the SECURITIES. Under its contract with the corporation, the underwriter agrees to pay for any unsold shares.

An underwriter operates by purchasing all of the new issue of stocks or bonds from the corporation at one price and selling the issue in smaller lots to public investors at a price high enough to cover the...