 Hey guys, it's MJ and in this video, I want to look at actuarial risk management and I want to consider something that most actuaries deal with and that is known as the actuarial control cycle. So what is this actuarial control cycle and why is it so important to the actuarial profession? So in a sense, there are five elements to this control cycle and what we're going to be doing in this video is just talking through each of the five So the first one and I guess the very first step in the actuarial control cycle is understanding the economic environment. So as actuaries what we want to know or what we want to do before we attempt anything is have a good understanding of the economic environment. This can be what is the inflation rate? What are the interest rates? What are the currency exchange rates? You know, what is the monetary policies? What's the fiscal policies? The tax rates? All of these things will fall under the economic environment and Actuaries are expected to have a very good understanding of economics and everything before going into the control cycle. So this is kind of like it's like the start to the cycle. Then we have the actual cycle itself which I'm going to draw a big little square from over here and before I get into it I just wanted to draw the final element and I'm doing this a little bit backwards and the final element is professionalism and the reason why I'm drawing a chair is because just like the economic environment it's saying that you always need to know so you always need to maintain a degree of professionalism when going into any actual problem. So these are two elements of the control cycle that fall outside of it but you always need to be aware of them. Well, you always need to have the knowledge of the economic environment and you always need to have the integrity of professionalism when you enter into the cycle. Okay, now we can get to the interesting part and the first one is specifying the problem. So there's that is that famous saying that a problem well stated is a problem half-solved or something like that and that's what actuaries want to do first off is specify the problem. Say what you're trying to accomplish whether it's passing an exam, setting a premium rate, calculating the reserves. You want to specify the problem. You want to say what you want to achieve. Then what you're going to do is you're going to develop the solution, which I know sounds kind of obvious but that is number two and that is to develop the solution. Now what is interesting is that there is a little bit of feedback going back. So while you're developing the solution you want to keep looking and saying, well, is the solution actually solving the problem that we want to do. No point in calculating the reserves if you want to figure out what the premium payments should be. So you always want to develop the solution but keep in mind what the problem is and then the final one which is, I think this is what makes it the most actuarial is is this number three here which is monitoring the experience. So the idea is that once you have solved the problem or once you've developed the solution you're not necessarily done. You're not finished yet. So let's say you say, okay, we need to calculate the reserves. You now need to monitor the reserves and if the reserves go below a certain amount maybe that would then feedback into the problem. So we need to have 10% of our reserves doing something. We developed the solution or the strategy to enable that but then we need to constantly monitor that to make sure that the reserves are behaving as we want because with actuarial science it's a dynamic subject, things are changing, there's random fluctuations and we need to be reactive if the problem pops up again and just because we've developed a solution doesn't mean it's gone forever but it might reappear and that's why you need to monitor the experience. And in a sense, this is the actuarial control cycle. Every single actuarial problem can be solved by first gaining a good understanding of your economic environment by approaching it with professionalism and then doing the three steps that all kind of feed back on each other which is specifying the problem, developing the solution and then monitoring the experience. Anyway, I hope you guys enjoyed this video and if you have any questions about the actuarial control cycle please feel free to leave a comment in the comment section below. Cheers!