Past exam of the mathematics course of the University of Cambridge / 2013 / iii / Paper 28 / 2 / a

For quota share reinsurance the insurer retains the same fraction of each claim, soThe annual retained loss is consequently $T_I=\alpha T$. Each transformed risk severity has probability density function $f_i(y/\alpha )/\alpha$ for $y>0$. The mixed transformed severity, with the same weights ${\lambda }_i/({\lambda }_1+{\lambda }_2)$, still gives a compound Poisson distribution. Scaling the expected value and variance givesThis agrees with the general retained-claim formulas because $\mathbb{E}g(X_i)=\alpha {\mu }_i$ and $\mathbb{E}[g(X_i{)}^2]={\alpha }^2({\sigma }_i^2+{\mu }_i^2)$.