The Market Value Adjustment (MVA) is a feature associated with certain types of annuities, specifically those with a fixed interest rate. An MVA is a provision that allows the insurance company to adjust the surrender value of the annuity based on changes in interest rates.
When interest rates rise, the market value of existing fixed-rate investments decreases. To protect the insurance company's financial position, the MVA is applied to annuities to ensure that the company will not have to sell investments at a loss to meet surrender requests.
If interest rates have risen since the annuity was purchased, the MVA is typically negative, meaning the surrender value of the annuity will be reduced. Conversely, if interest rates have declined, the MVA may be positive, resulting in an increased surrender value.
The MVA is calculated by multiplying the MVA factor by the difference between the current interest rate and the interest rate when the annuity was purchased. The MVA factor is determined by the insurance company and can vary between different annuity contracts.
It's important to note that not all annuities have an MVA. Some annuities, such as variable annuities or indexed annuities, do not typically include this provision. Additionally, the specific terms and calculations related to the MVA can vary between insurance companies and annuity contracts, so it's crucial to carefully review the terms and conditions of the annuity contract to understand how the MVA works in a particular case.