Until recently, underwriting was the prerogative of the West. But with the development of all segments of the financial market in Russia, the need for a detailed analysis of transaction participants has increased. Read more about what is underwriting risks in the bank, insurance and in all other financial areas, read on.
Origin
The term "underwriting" arose during the formation of marine insurance. The merchant put (write) under (ander) the amount of his signature, thus confirming the risks that he was going to cover.
Underwriting is a detailed analysis of a potential borrower. It is carried out in order to identify the possibility of (non) repayment of the loan. This department in financial institutions processes all information about the applicant according to data from the borrower himself, information from the Federal Tax Service, and other social bodies. In addition, each financial institution operates according to an individual scheme.
Bank underwriting: what is it?
Analysis of borrowers in a credit institution is carried out in three directions.
Solvency assessment. Total incomes of any nature are determined: income from labor activity, sale of property, entrepreneurial activity, deposits.
Availability of a credit history regarding the criteria of undertaken obligations and solvency.
The probability of providing a loan in the form of movable and immovable property, securities, accounts receivable, inventory materials, etc.
Types of Research
Scoring (automatic underwriting) - this is research that is carried out when applying for express loans or POS loans. The whole process is carried out through special software by one specialist for 5–20 minutes.
Individual underwriting is a check that is carried out with mortgage lending, the provision of loans for large amounts and all loans for legal entities. Such research is carried out by the analytical department, consisting of lawyers, credit inspectors and security services. They thoroughly check all provided customer data for one to two weeks.
Underwriting from A to Z
The procedure starts right at the door of a financial institution and even before the application for a loan. The signed application is sent to the underwriting center. Here, the verification of all received data and the request for additional information on the client are carried out. These operations are carried out to verify the solvency of the client and protect the financial institution from loan defaults. First, the type of study on which credit underwriting will be conducted is selected. For scoring, all data is presented in the questionnaire. It remains only to enter them into the program and get the result.
Determination of income
Individual underwriting provides for more detailed verification. Specialists evaluate the income level of the client, confirm the accuracy of the information received. If you have any doubts, submit a request to the Federal Tax Service, to the company that issued the 2-NDFL certificate. Often called customer guidance. Sometimes banks receive information from unofficial sources. Incomes are compared with the average level of earnings in the professional industry, and their growth rate per year. Based on the data obtained, a conclusion is drawn about the real level of earnings.
In parallel with checking the level of income, the possibility of using collateral, or rather the correctness of the preparation of documents for the declared property, is evaluated:
- Does the borrower really own the property?
- whether it is pledged in other credit institutions;
- lack of judicial arrest.
Credit History Analysis
Each financial institution develops its strategy based on data from the Bureau of Credit Histories. The NBCH contains information for each person who has ever taken a loan: generalized data, conditions and terms for repaying a debt. Existing loans, arrears, and timely payments may affect the final grade.
Final results
Based on the results of the data, a score is set and one of the following decisions is made:
- refusal to provide a loan;
- approval of the application;
- granting a loan, but with amended conditions, for example, a decrease in the amount or an increase in the loan term.
Example
The country's largest financial institution has developed its own scheme, under which underwriting is carried out in the bank. What does it mean? Sberbank has formed the "Interregional Center for Underwriting." The decision for each client is made not only on the basis of general parameters, but also taking into account the individual characteristics of the region.
During the study, three categories of coefficients are calculated:
- Liquidity reflects how much of the client’s own funds or property will be able to cover the loan.
- The presence of own money in the proportion of the total amount of finance of the enterprise or joint property.
- Profitability reflects the share of net profit in revenue.
According to the calculation results, the payer is assigned one of the following categories:
1 - the provision of a loan is not in doubt;
2 - an individual approach;
3 - increased risks.
How does a borrower go through underwriting?
- Prepare a full package of documents.
- Pick up 1-2 guarantors.
- Provide information about all sources of income: salary, deposits, apartment sales.
- Pay off debts even for car fines, utilities payments.
CB analysis
An issuer who wants to raise funds through the issuance of securities can independently arrange an issue or attract professional participants. The underwriter at RZB services and guarantees the issue of shares and bonds. He assumes the obligation to place assets on the stock exchange on behalf of the issuer.
In Russia, this term was first used in relation to bonds of municipal loans, when each of the participants in the syndicate assumed obligations to acquire a certain part of the assets on the market. Underwriting in respect of corporate securities was first applied during the issue of shares of Red October PP (1994). Underwriters represented by British companies took 10% of the funds actually raised as payment for services. Today, underwriting in Russia on RZB is not in demand due to the lack of emissions.
Underwriting is a profession
The most important task of an underwriter is risk assessment of loans, insurance contracts. The work is carried out in several stages:
- proof of ownership;
- risk assessment for the facility;
- determination of the level of solvency and profitability of the client;
- making decisions on concluding a contract with a client (underwriting in insurance);
- assignment of an object / client to a specific group;
- making adjustments to the contract;
- tariff calculation insurance premium credit rate;
- signing of documents.
Advantages and disadvantages of the profession
Like any officially arranged person, the underwriter receives a stable salary, a full social package, paid business trips. The main disadvantage of the profession is that it is difficult for a person who is used to working with numbers to communicate with clients. This is a very important skill. Since, for example, insurance underwriting provides that it is a specialist who evaluates all the risks that will decide to sign an agreement with a client.
