The amount of room you have on your butt for tattoos. Also, a term related to insurance companies.
Underwriting represents the basic business of an insurance company. Selling you a policy for your jet ski is an act of underwriting for the insurer. The term "underwriting capacity" refers to the amount of underwriting a company can do. Fundamentally, it asks the question: how much insurance can we give out? Or, to put it another way: how much risk can we take on?
The underwriting capacity has to do with the company's balance sheet. It has to do with the amount of assets the company has available to take care of claims, as they come up.
Say you get insurance on your $25,000 car. If a helicopter lands on the vehicle and absolutely smushes it, the insurance company would be out $25,000...total loss. If the company has $3 million on its balance sheet available to pay for claims, it could write 120 of those $25,000 policies.
In real life circumstances, the math gets more complicated. It would be extremely unlikely for all 120 cars that the insurance company has insured to get totaled at once. The insurance company would have some equation it would use to calculate the safe reserves needed to cover the number of cars they have policies for. Crunching all the numbers, an insurance company will come up with the amount of risk it can afford to take on based on its underlying balance sheet. This number ($10 million, $500 million, $3 billion, whatever) represents its underwriting capacity. The bigger the balance sheet, the more underwriting capacity a company has.
Meanwhile, the bigger you get, the less competition there is. This situation matters when you get to mega catastrophic insurance. Like, NASA calls and says, "Hey, we need a policy on our $200 billion space station." Berkshire Hathaway represents the clearest example of a player in this mega catastrophic space. Because it has a uniquely expansive balance sheet, it doesn't have much (or any) competition on the very high end, making the business extremely lucrative for them. They have a vast amount of underwriting capacity, allowing them to take on policies no one else can.
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Finance: What is an Underwriter?81 Views
finance a la shmoop what is an underwriter Undertaker underwriter
taking your company public well then you need one of these guys and yeah if [Woman writing at a desk]
things go poorly well then you may need one of these guys but if things go well [Gravestone]
an underwriter will get to know your company audit your financials give their
Good Housekeeping Seal of Approval to the investment community with whom they
deal regularly and introduce you as part of their family selling a piece of your
company to that world you know hedge funds mutual funds private wealthy [List of benefits that come with an underwriter]
investors such that they are the you know financial wind beneath your wings [Skyscraper flying away]
for a brief moment in time the underwriter usually an investment bank
like the vaunted Goldman Sachs or Morgan Stanley or JP Morgan or UBS or Sumitomo
will actually themselves own whatever piece of your company you are bringing [Logos for the banks appearing]
public like if you're selling 18 million shares at 20 bucks the bank's our
underwriters take a new public will own all 18 million shares having paid you
$19.60 for them and then turning around five minutes later and selling them for
20 bucks to John Q invest or making 40 cents a share in spread or markup or in [Spread calculation shown]
this case 40 times 18 million or 7.2 million dollars just for the pleasure so
that's an underwriter and if they screw up well yeah and ironically the [Underwriter stamp]
announcement he'll see in the digital paper is usually in the shape of a
tombstone announcing everything why a tombstone well because it represents the
death of ambiguity or confusion in that company's former life as a private one [Gravestone for ambiguity]
The Undertaker's hopefully have far far away [The Undertaker running away with the word confusion]