Market Value Adjustment (MVA)
A Market Value Adjustment (MVA) can be attached to a deferred annuity that features fixed interest rate guarantees combined with an interest rate adjustment factor that can cause the actual crediting rates to increase or decrease in response to market conditions. Generally, the MVA will only apply to the amount withdrawn in excess of the free withdrawal provision stated in the contract during the surrender charge period (most annuities will allow free withdrawals of 10% of the accumulation value or the interest earned in the contract). If interest rates are higher at the time of withdrawal than when the contract was purchased, a negative MVA will apply. If interest rates are lower at the time of withdrawal than when the contract was purchased, a positive MVA will apply.How the MVA Works
How the MVA is Different
- The owner places money in an account that earns a fixed rate of interest (the annuity values are supported by the full faith and credit of the insurance company).
- The insurer holds the owner’s money in this account for the length of the designated guarantee period. At the end of the guarantee period there is usually a “window” when no withdrawal charges or market value adjustment will apply.
- At the end of the guarantee period, the company declares a new current interest rate, or renewal rate, which may be higher or lower than the previous rate, but not below the minimum interest rate guaranteed by the policy (typically 2% to 3%).
If you want to surrender your annuity prior to the end of the guarantee period, an “adjustment” will be made. The actual contract value you receive has the potential to be positively or negatively affected by current market conditions. Because the issuing company has invested your premium to ensure it can pay you the rate guaranteed in your contract, it could lose money if it had to sell those investments at a discount to refund your premium plus your earnings. The reverse can also be true. Risk Factor
The MVA serves to protect the insurance company against investment losses incurred by early withdrawals. By having a more predictable pattern of withdrawals, MVA annuities have a greater potential to credit higher interest rates than the traditional fixed annuity.
Last Updated: 9/23/2012 10:05:00 PM