Abstract for: A System Dynamics Approach to Modelling Business Activities of Ukrainian General Insurers
In this paper, a system dynamics model of a Ukrainian general insurer is presented. The aim of the study is to examine the potential feedback effects related to the dynamics of profitability of an insurance company. The developed model follows the managerial accounting logic, which combines a traditional accounting approach with non-financial elements. The model structure consists of twelve interconnected modules, each representing a relatively detached sphere of insurer operations. The major feedback loops that determine the dynamic behavior of the model are based on a combination of different business activities. These loops produce both reinforcing and counteracting effects that influence the financial performance of an insurance company and are centered around insurance rate, insurance premiums ceding, and investing. The test of model responses to different demand shocks allowed to corroborate the prominent feedback impacts and outline possible implications for managerial practice.