Close your eyes and think of Bermuda and you might imagine rum swizzles, seafood cuisine and the most amazing underwater scenery. From a professional point of view, you can’t help but marvel at the insurance industry. For decades Bermuda has been in the forefront of innovation in risk – leading it to become known as The World’s Risk Capital – capturing the attention of insurers and reinsurers across the globe. So it makes sense that Bermuda and underwriting go hand-in-hand.

What is underwriting?

Underwriting is the process of risk assessment on a wide range of financial transactions. An underwriter will assess the risk involved with mortgages, insurance policies and investments, for example. He or she will evaluate the risks involved and assume the associated risk for a fee. Seeing as the underwriter is held accountable for potential loses, it is essential they look at each case in great detail to understand how much risk is entailed. Clearly, the final decisions of underwriters have significant importance.

Different types of underwriting

Underwriters can be found in a wide range of industries. Think of a start-up looking for funding, companies looking for a loan to expand, or even anyone hoping to secure a mortgage. Here are some examples of types of underwriters:

  • Insurance Underwriters – Within insurance alone, there are many different types of policies and cover available. Again, insurance underwriters will look at the applicant’s situation to decide whether they should be covered or not. They also re-evaluate the situation of existing clients when renewing policies and provide feedback on risk management problems
  • Mortgage Underwriters – As a consumer, you have experience with an agent or broker, someone who provides advice and acts as an intermediary. Mortgage underwriters work for the insurance company and check all of the information of applicants to decide if they meet the requirements of the mortgage loan and the risk of them not being able to pay it back. They are also responsible for confirming the property appraisal and the correct value of property covered by the policies
  • Loan Underwriters – Someone might require a $5,000 student loan, a $1m business loan or anything in between. Each case will have to be analysed by a loan underwriter to understand the risk of agreeing to these loans. Underwriting software helps but it doesn’t replace the role of a loan underwriter
  • Securities Underwriters – Most frequently, securities underwriters work with IPOs (initial public offerings) to determine the offering price. They can also purchase these securities from issuers and sell them on to investors. Securities underwriters (or IPO underwriters) are will often be employed for these purposes by investment banks

Now that we have an overview of what underwriting is, let’s turn back to Bermuda.

Beyond its renown as a centre of insurance, another reason to appreciate the connection between underwriting and Bermuda is the history of underwriting. In the 17th century, as the Island switched away from agriculture become a centre of maritime enterprises, Bermudians began to build ships in increasing numbers to support international trade between England and the Americas.

The first underwriters appeared when ship owners sought out insurance for their vessels and cargo. A document would be prepared, listing the assets. Businessmen would agree to take on a certain amount of risk and sign their name under the information— hence the origin of the word ‘underwriter’.

Considering Bermuda’s ongoing sailing tradition – think the hugely successful America’s Cup – together with its rich sea life, trading history and the commitment of the Association of Bermuda Insurers & Reinsurers to monitoring and protection of the marine environment, it’s as if history has come full circle.

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Read also: Bermuda Start-Ups | The ‘Class of 2020’

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