6 THE PROJECTION MODEL Every two years the Mortality Research Committee, in collaboration with the Working Group, estimates a new projection model, that can be used to determine a best estimate of future mortality probabilities and also to generate stochastic scenarios. In the analyses that precede this, considerations are made whether it is wise to implement model changes. This was not the case when moving from AG2016 to AG2018. The Committee has decided to make some changes for AG2020. These changes are described and explained in this chapter. First, the starting points of the approach are discussed, indicating why adjustments in some areas are desirable. Then the new choices are detailed and the consequences of these changes for the mortality forecast clarified. 6.1 Model assumptions unchanged As in previous years, the forecast is based on the best possible projection of past trends. Again, explicit consideration is given to the fact that mortality probabilities cannot be observed, as we only observe mortality frequencies in a limited sample. The best way to take account of the uncertainty that this entails is to estimate the parameters using a statistical model. The uncertainty in future projections can be visualised by defining stochastic scenarios for future mortality alongside the best estimate mortality probabilities. This offers insurers and pension funds the option to supplement the stochastic scenarios for quantities such as interest, inflation and share prices in their asset and liability management with stochastic scenarios for mortality. This feature makes the Dutch approach stand out from that in many other countries, where the actuarial societies only supply mortality tables. Projections Life Table AG2020 The projection model 18
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