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Tag: underwriting

What is an Underwriter Salary?

Posted on by Imarticus Learning

It is easy to mistake the role of an underwriter as someone who writes something. So, before knowing what the average salary of this position is, it is good to know the profile.

Who is an Underwriter?

As opposed to what the term suggests, an underwriter is someone who analyses and assesses the risks and liabilities involved in a loan or mortgage application. It is a person employed by a bank or a financial institution or a non-banking financial company (NBFC) to receive loan applications and check its validity against a set of standards and policies.

Although this role may sound easy, in reality it involves several concepts and terminologies in the finance and banking world. Because an underwriter essentially works on behalf of the company she works with – where accepting a fraudulent loan application can cause issues – it is an important job role.

With a very active growth in the finance world where borrowers – individuals and organizations – are growing by the day, the role of an underwriter has become more important.

What was a role that did not exist in the previous century – because other staff took care of it – is today a sought-after career role in India. All of this makes it a hot job for job seekers who have a financial or banking academic background.

Underwriter Salary – How Much Is It?

Although it is incorrect to suggest a solid number that will give you a blanket idea as to how much an underwriter earns, Payscale.com has come up with a number. According to its website, the average underwriter salary in India is roughly INR 4,85,000 (i.e. 4.85 lakhs). This is the annual package or the cost to the company (CTC). This figure is based on over 100 respondents who Payscale surveyed till May 2020.

It should be noted that this underwriter salary is for job roles in metro cities like Mumbai, New Delhi, Bengaluru, and Chennai. The numbers will change as per the location, the company, and the experience of the candidate. Research also suggests that individuals who took underwriting courses have reported higher incomes than average.

List of Underwriter Salaries by Experience

Here is a list of packages received by underwriters with different levels of experience. All figures imply annual salaries (gross income).

  • Fresher – Around INR 2,00,000 (2 lakhs)
  • Less than 3 years of experience – Between INR 4,00,000 (4 lakhs) and INR 7,00,000 (7 lakhs)
  • 5+ years of experience – Between INR 8,00,000 (8 lakhs) and INR 12,00,000 (12 lakhs)
  • 10+ years of experience – More than INR 15,00,000 (15 lakhs)

It should be noted that an underwriter’s role experiences substantial changes once the person has stayed in it for long. A person with more than five years of experience will soon move to other roles that will entail a lot of other tasks such as risk management.

Role of an Underwriter in a Glance

If you are an aspirant and are looking to take an underwriting course, here are some ground realities for you to consider:

  • You will be working on different types of loans and mortgages
  • An understanding of company policies and government regulations (SEBI, RBI, etc.) will be needed
  • It is an office job that will entail eight-hour shifts (or more)

As you gain experience, your role will change considerably. In terms of hikes and promotion, an underwriter’s role is not limited to loan assessment. You can even move to wealth management, portfolio assessment, and risk management roles. These pay relatively on a higher scale.
Begin your journey to a dream job. Enrol into an underwriting course today.

Also Read: What is Credit Risk Underwriting

What is the Role of an Underwriter?

Posted on by Imarticus Learning

Understanding the underwriting process

The term underwriting came from the practice of risk-takers writing their names under the total amount of risk they took. Before going into the details of the role of an underwriter, let’s get an idea about the underwriting process and what all it entails. In the most basics sense, underwriting can be explained as a process where big financial institutions provide their services to cover the financial risk for any liability arising out of an agreement.

It can also be understood on the grounds of leveraging the risk in case of an uncertain event. The financial institution guarantees monetary aid in case of any undesirable outcomes mentioned in the contract. Underwriting is one of the most important functions in the banking and finance segment.

The underwriting services can be provided by an individual or an organization wherein the risk related to a business or investment is undertaken by the service provider for a premium amount. The underwriters are primarily available in banking, insurance and stock markets to hedge the risks.

Now that we have a fair idea as to what the underwriting process entails, let’s delve deeper into the roles of an underwriter.

Role of an underwriter

So what exactly does an underwriter do? Well, an underwriter is responsible for hedging your risk in case of uncertain events. The roles and responsibilities along with the purview of an underwriter differ depending upon what type of underwriting services are offered by them.

Underwriters primarily function in three sectors; the banking sector, the insurance sector and the stock market. Let’s look at the role of an underwriter in these contexts to obtain a better understanding of the role.

  • Insurance underwriter: Insurance underwriters play a very crucial role in the insurance sector by hedging and dividing the risk associated with an insurance policy. Insurance underwriters are responsible for reviewing the application for risk coverage and conducting a thorough risk analysis.

    Based on their risk analysis they accept or reject the application. Insurance brokers and other parties submit the insurance applications on behalf of their clients which are reviewed by the underwriter who then decides whether to provide insurance coverage or not. In addition to this, the insurance underwriters also advise on risk management issues and determine the extent of coverage for various parties.

  • Mortgage underwriter: A mortgage loan underwriter is among the most common underwriters you’ll find. A lot goes into the mortgage application process. Thorough credit analysis is performed where the applicant’s income, credit records, cash flow, savings, etc. are assessed to determine the risk associated with loaning out the funds.

    Mortgage loan underwriters are responsible for overviewing the financial track record of the individual and based on their assessment, they approve or discard the loan for an applicant. They are also responsible for reviewing the value of collateral pledged for the loan so that the loan can be recovered in case of default.

  • Underwriting in the stock market: Underwriters in the stock market are responsible for determining the price of a security and identifying the risk associate with it. Let’s take an example to understand it. You must have heard about the IPOs where a company issues funds from the public by selling the shares of a company.

    In this case, investment banks provide their underwriting services to evaluate the correct price of a security by factoring in all risks and benefits. The insurance bank buys or underwrites the security issued by the business entity and then sells it to the public. Here, the insurance banks underwrite or hedges the risk associated with the sales of security.

A career as an underwriter can be very rewarding depending upon which segment or industry you are aiming for. You can opt for an underwriting course to obtain a comprehensive understanding as to how the market functions and learn the skills needed to get a job as an underwriter in a reputed organization.

Also Read: What is Underwriter Salary

What Are Widely Used Underwriting Models in Credit Risk

Posted on by Imarticus Learning

Financial institutions around the globe manage and give loans to companies/businesses that need help. But hey have to manage the records of its clients and has to find out the possibility of non-payment. A good financial institution always has an expert team dedicated to this job.

They analyze the data/information of the clients and based on some attributes; they find out the trustworthiness factor on any particular client. This helps the bank to identify those clients who can ditch them in the future and thus they take measures accordingly.

In this article, let us discuss some famous methods which are widely used by people to calculate credit risk.

What is an Underwriting Model?

Underwriting is a structured process which is used by financial institutions/investors to find out the level/degree of vulnerability in terms of non-payment, late payment of dues can occur. It is a type of analytical job. It helps in reducing the chances of credit risk.

Let us discuss various types of underwriting which are widely used.

Widely used underlying models in credit risk

  • Traditional approach – There are many sites and surveys which determine the potential of risk in different sectors. Agencies like S&P, Moody, etc. determine the level of credit risk in different sectors such as mortgage loans, industrial loans, education loans, etc. financial institutions use this data and view the potential of risk according to them only. There is no specialized analytics conducted at the workplace. Such an approach is not bad because these agencies are highly credited and certified.
  • Rating based system – Its formula is the product of Probability of Default (PD), Exposure at Default (EAD) and Loss Given Default (LGD). It gives us the value of the expected loss. Expected loss = PD * EAD * LGD, Where, EAD is defined as the amount of credit given to any particular client. PD is defined as the low approval ratings and bad records which lead to the possibility of credit risk. For default companies, PD is 100%, LGD is the loss faced by the company/firm. A lot of analytical work is done in these types of approaches but they give more accurate results. Many financial institutions have dedicated workplaces and a highly valued job for credit risk analysts.
  • Advanced rating system – It has two types which are as follows:Calculated internally in the bank whereas EAD & LGD are provided by the bank supervisors who can also use various existing frameworks provided by BASEL to determine these aforementioned attributes. A lot of analysis is based on algorithms in this method.Advanced IRB approach in which all the attributes are calculated internally by the Foundation IRB (Internals Ratings Based) approach in which PD is  Bank but the work is mainly automated through good analytical models and frameworks.

The Five Fundamental C’s of Credit Risk

Five basic attributes are used across each model. These are the Credit history of the customer, Capital, Capacity of repayment, Collateral and Conditions of the loan. These C’s are manipulated into mathematical values and institutions find the potential/vulnerability of the credit risk from any particular customer. There are many accords and regulations such as BASEL III, IFRS 9, etc. which help in determining credit risk.

Conclusion

There are many types of fraud activities witnessed by financial institutions. To protect any such incidents, the institutions try to dig up about the client and conclude that if he is eligible for the loan or not. He will get the loan only if the approvers think that he/she can repay in due time.

This protects banks /investors from losses. There is a credit rating for each borrower which fluctuates based on his repayment. If he/she fails to repay, his credit ratings may go below and he/she may be denied a loan in the future. This article was all about widely used models for determining credit risk.

What Is a Credit Risk Analyst?

Posted on by Imarticus Learning

Before jumping over to who is a credit analyst and what are their roles and responsibilities let’s put things in context and understand the basics of the credit analysis process starting with credit risk.

What is Credit Risk?

Credit risk can be simply defined as the risk of default on the debt amount when the borrowers fail to make the required payments as per the contract. The loss accounted could be partial or complete leading to disruptions in cash flow for the lender and increased cost of collecting the loan amount.

In an efficient market, the cost of borrowing varies with the degree of credit risk associated based on the borrower’s profile. A credit check is usually performed by the lender before advancing any credit to the borrower; the credit assessment is based on various parameters that can help determine the repaying capacity of the borrower.

The process of credit analysis

For any lending institution, it is important to evaluate the credit risk profile of the borrower to minimize and cut down on its losses. The process of credit analysis helps in assessing an applicant’s credit request or debt issue from companies to establish the credit risk associated with them. It is a method that aids in evaluating the creditworthiness of an individual or a corporation.

On the technical side of it, the credit analysis process includes applying various financial analysis techniques, creating future projections and evaluating future cash flows. It also involves judging the candidate on multiple aspects such as credit history, collateral provided ability to manage the loan amount, other sources of repayment, etc. The probability of default on the debt and extent of loss in case of default is also calculated by analysts to depict a holistic picture.

Credit Analyst Roles and Responsibilities

Now that we are familiar with the credit analysis process let’s see what does a credit analyst does? To put things in context here, a credit risk analyst is a person responsible for carrying out the whole credit analysis process.

From a broader perspective, the role of a credit risk analyst involves reviewing and assessing the financial history of a person or corporation to determine if they are a good fit for the desired borrower profile. The job of an analyst here is to determine the risk of default to the lending party.

It’s not always black and white while determining the credit risk profile, there is a big grey area in most of the cases. A credit risk analyst can’t simply say yes or no to a loan application. After their comprehensive assessment, the loan is structured depending upon the creditworthiness of the borrower, a risky borrower could be given a loan at a higher interest rate.

The credit analysis process involves a series of steps to be carried out by the analysts to present a holistic picture. The first step deals with relevant information gathering; this includes collecting relevant personal information about the applicant, gathering information about the business for which loan is required and information regarding the source of repayment and the collateral pledged to the lending party.

The second stage of the analysis process deals with analysing the information collected. This includes analysing the accuracy of the information gathered, the financial stability of the borrower, the effectiveness of the project/business, the possibility of repayment of the loan amount.

The final stage deals with the decision making step by the analysts based on the credit risk associated with the applicant, if the credit risk is in the acceptable range then the loans are granted, if not, the request for a loan is denied by the credit analyst.