The key measurement approach is that of fulfilment value or the expected cost from the perspective of the insurer to fulfil all contractual obligations of the insurance contract.

This approach includes non-biased best estimate cash flows, an adjustment for risk and discount rates that are consistent with the characteristics of the insurance liabilities and observable market prices.

To avoid the present value of all future profits on an insurance contract going through profit or loss at the first measurement of the contract, a contractual service margin is created. Specific rules apply for the accretion of interest and release of this margin.

Each reporting date requires an update of the fulfilment value, but the profit or loss on insurance activities is more complicated than just the change in fulfilment value and contractual service margin.

When contractual cash flows depend on economic results, like the investment result on underlying assets or the result of the insurance company, the basic approach must be adapted to allow for dynamic fulfilment cash flows and contractual service margin.