Question $2(15$ marks$)$ ABC insurance company has two lines of insurance business:

Portfolio A: risks are relatively homogenous with similar sizes and risk profiles

Portfolio B: risks are quite heterogenous with dissimilar sizes and some risks are quite

hazardous

$2\mathrm{.}1$ Name one proportional reinsurance that is appropriate for ABC insurance company to transfer

some liabilities of Portfolio A$.(3$ marks$)$

Discuss the impacts of the proposed reinsurance on ABC insurance company's income

statement. $(3$ marks$)$

$2\mathrm{.}2$ ABC insurance company is concerned about the potential exposure of Portfolio A to certain

natural catastrophes that can cause correlated losses and would like to further limit its retention

under proportional reinsurance proposed in $2\mathrm{.}1.$ Explain how ABC insurance can achieve this

objective. $(5$ marks$)$

$2\mathrm{.}3$ Due to the nature of the risk in Portfolio B$,$ some large and hazardous risks are excluded from

the treaty reinsurance between ABC insurance company and its treaty reinsurer. Name two

options for ABC insurance company to obtain reinsurance coverage for these excluded risks.

$(4$ marks$)$