A Market Value Adjustment (MVA) product is a "declared rate" fixed annuity, which differs from traditional "book value" fixed annuities in an important way – if the funds are withdrawn from a MVA product as a full or partial surrender (and sometimes at death or annuitization), the insurer calculates an adjustment to the values paid to the policyholder. This is the market-value adjustment, which is made before any withdrawal penalties.
With MVAs, owners lock in a guaranteed interest rate over a specified maturity period (three or 10 years, for instance). A MVA will increase or decrease the surrender penalty, based on market interest rates at surrender compared to the contract period guaranteed rate.
- If contract is held to maturity, the tax-deferred account value reaches the amount guaranteed at issue.
- If the principal is withdrawn early, the value may be subject to a surrender charge and the age 59 1/2 penalty (if applicable), but also to a positive or negative "market value adjustment" based on the interest rate at time of surrender.
- If interest rates are higher than at the time of issue, the MVA would be negative and the owner would lose money.
- If rates are lower, the MVA would be positive, and the owner would make money.
Companies are increasingly offering more annuities with MVAs to protect themselves from lapsed contracts during periods of rising interest rates.
