ACTUARIAL MATHEMATICS REPORTIntroductionAll of us has anticipations about life; however, what mayhappen in the future is unpredictable and depends on probabilities. Basicly,probability theory is a branch of mathematics which measures the probability ofoccurance by the ratio. In conjunction with statics, it composes thefundamentals of actuarial mathematics.
Besides this,insurance is a business which undertakes to provide a financial protectionagainst unfavourable events. And the main conception in actuary is risk.According to the Cambridge Dictionary, an insurance risk tersely refers to thepossibility of loss, damage, injury etc. against which insurance is provided. This report aims todefine model risk; in addition to this, it examines the individual pendisonsystem and life tables.1.
Model Risks Modelling is utilized in decision-makingprocesses of various disciplines. It is crucial for organizations to model inorder to express a large amount of information apprehensibly and bring credibleestimates to policies. Althoughmodelling make a significant contribution to organizations, modelling methodshave some risks in itself.
(Clifford, 2017) This type of risk called”model risk” and it arises when a financial model does not fulfillthe duties it was designed to. FederalReserve System (2011) suggested that “The use of models invariablypresents model risk, which is the potential for adverse consequences fromdecisions based on incorrect or misused model outputs and reports. Model riskcan lead to financial loss, poor business and strategic decision making, ordamage to a bank’s reputation.” And divided model risk’s reasons into twodimensions;• The model may have fundamental errors and may produceinaccurate outputs when viewed against the design objective and intendedbusiness uses. …• The model may be used incorrectly or inappropriately. In summary,preventing from fundamental errors is unfeasible and ensuring the proper use ofmodels can be challenging. 2.Compulsory Individual Pension System Individualpension system- Self-Retirement Programs established with Law inTurkey at 28/3/2001 with the “Bireysel Emeklilik Tasarruf VeYat?r?m Sistemi Kanunu” written at Law Number is 4632-Established OfficialGazette Number 243661.
Before this law , there was lifeinsurances and goverment’s retirement (Sgk-Bagkur etc. ). This principle/lawchanged 3 times between 2001 than 2018. The most effective correction washappened at 2016. This correction made for make obligation/compulsoryindividual 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 witha pension agreement papers prepared by company’s Lawyer ormust be taken from Turkish goverment. 1 Legal Insights Quarterly by ELIG, Attorneys-at-Law inMarch 2017 3.Life Tables In recent years, a lot of peopleincluding sociologists and public health officers have been taking an interestin life tables as an explanation of the age-variation in the chances of deathand survival.
(Greville, 1943) Therefore, life tables are commonly used ininsurance, actuary and demography. Lifeexpectancy tells us how long a person at the age of x will live further. It is impossible to give the accurate answerfor an any individual due to the variety in people’s lifetimes.
However, whenconstructing a life table, the data obtained from a large group of individualsis recorded and this helps us to find the closest estimate. Conclusion: Instiutionsmake their decisions relying on models; however, models have become more andmore complicated lately. For this reason, models can be misleading and giverise to catastrophic consequences. So it is of vital importance to manage modelrisk. Therefore, establishments reinforce their decision-making processes andmaximize their utility. Besides this, it is possible to sort the functions ofindividual 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 pathto follow in a population or a health related situation.