ACTUARIAL MATHEMATICS REPORT

Introduction

All of us has anticipations about life; however, what may
happen in the future is unpredictable and depends on probabilities. Basicly,
probability theory is a branch of mathematics which measures the probability of
occurance by the ratio. In conjunction with statics, it composes the
fundamentals of actuarial mathematics.

Besides this,
insurance is a business which undertakes to provide a financial protection
against unfavourable events. And the main conception in actuary is risk.
According to the Cambridge Dictionary, an insurance risk tersely refers to the
possibility of loss, damage, injury etc. against which insurance is provided.

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This report aims to
define model risk; in addition to this, it examines the individual pendison
system and life tables.

1.Model Risks

Modelling is utilized in decision-making
processes of various disciplines. It is crucial for organizations to model in
order to express a large amount of information apprehensibly and bring credible
estimates to policies.

Although
modelling make a significant contribution to organizations, modelling methods
have some risks in itself. (Clifford, 2017) This type of risk called
“model risk” and it arises when a financial model does not fulfill
the duties it was designed to.

Federal
Reserve System (2011) suggested that “The use of models invariably
presents model risk, which is the potential for adverse consequences from
decisions based on incorrect or misused model outputs and reports. Model risk
can lead to financial loss, poor business and strategic decision making, or
damage to a bank’s reputation.” And divided model risk’s reasons into two
dimensions;

•
The model may have fundamental errors and may produce
inaccurate outputs when viewed against the design objective and intended

•
The model may be used incorrectly or inappropriately.

In summary,
preventing from fundamental errors is unfeasible and ensuring the proper use of
models can be challenging.

2.Compulsory Individual Pension System

Individual
pension system- Self-Retirement Programs established with Law in
Turkey at 28/3/2001 with the “Bireysel Emeklilik Tasarruf Ve
Yat?r?m Sistemi Kanunu” written at Law Number is 4632-Established Official
Gazette Number 243661.  Before this law , there was life
insurances and goverment’s retirement (Sgk-Bagkur etc. ). This principle/law
changed 3 times between 2001 than 2018. The most effective correction was
happened at 2016. This correction made for make obligation/compulsory
individual pension system (CIPS) for Turkish Employees , this law was
“New Law For Automatic Participation In A Pension Plan
(BES-Bireysel Emeklilik Sistemi ) “. With this correction
, employees could change their company and their invesments.
These workers/employees can select their company (
mostly banks ) will participate in the BES with
a pension agreement papers prepared by company’s Lawyer or
must be taken from Turkish goverment.

1 Legal Insights Quarterly by ELIG, Attorneys-at-Law in
March 2017

3.Life Tables

In recent years, a lot of people
including sociologists and public health officers have been taking an interest
in life tables as an explanation of the age-variation in the chances of death
and survival. (Greville, 1943) Therefore, life tables are commonly used in
insurance, actuary and demography.

Life
expectancy tells us how long a person at the age of x will live further. It is impossible to give the accurate answer
for an any individual due to the variety in people’s lifetimes. However, when
constructing a life table, the data obtained from a large group of individuals
is recorded and this helps us to find the closest estimate.

Conclusion:

Instiutions
make their decisions relying on models; however, models have become more and
more complicated lately. For this reason, models can be misleading and give
rise to catastrophic consequences. So it is of vital importance to manage model
risk. Therefore, establishments reinforce their decision-making processes and
maximize their utility. Besides this, it is possible to sort the functions of
individual pension system as follows;

•
increase national savings

•
accelerate the development of financial markets

•
create supply and demands for funds

•
create capital accumulation.

Finally, life tables are constructed to determine what path
to follow in a population or a health related situation.

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