Suppose you lend to thousands of small businesses. You don’t have detailed balance‑sheet data for each one, but you do know that, on average, 2 % of them default each year—and that in a bad year the default rate can spike to 5 %. How can you build a fast, reliable picture of the total losses you might suffer? This chapter introduces the actuarial approach to credit risk: a family of models that treat defaults as random counts, mix them with a hidden economic “weather” variable, and then compute the full loss distribution using some clever mathematics.