The term underwriting originated in the UK, in the coffeehouses of the time when ships of the empire sallied forth and returned with riches from exotic places. Just as now, insurance was provided for those voyages. The insurance contract required the insured (or whoever is paying the premium) to literally write their name and sign underneath the text of the insurance contract. I imagine this was done to enable the insurer weasel out of claims by insisting on the strictest interpretation of the contract.
In relation to issuance of securities, underwriting serves as insurance because it ensures that the issuer of the security will receive some money for its securities. In addition to the underwriting fee paid to the investment bank, there is also a fee if the obligation crystallizes (meaning the contract is called in because the market did not subscribe to the issue), called the crystallization fee. In my experience, it is the largest fee charged by investment banks, sometimes as high as 8% of the amount underwritten. I understood the reasoning behind the steep fees as being a deterrent to issuers from pushing for unrealistic valuations. However, where the investment bank allows such a valuation, and the underwriting obligation crystallizes, the fee it charges might not be enough to cover the costs it would have to bear for holding those securities.
Iron Noder 2020, 17/30