What on earth is an MVA?
According to Barron's Insurance Dictionary, a Market Value Adjustment is "an increase or decrease in the surrender charge of the life insurance policy or annuity contract depending on the current financial markets." Well, kinda. An MVA is actually separate from the surrender charge. In essence, an MVA is a feature that is often attached to deferred annuities, which could increase or decrease the cash surrender value of the annuity if more than the penalty-free amount is withdrawn (or if the contract is fully surrendered) during the surrender charge period.
In general, if interest rates are lower at the time of withdrawal than at the time the annuity contract was issued, the annuity's cash surrender value will be increased (thus, market value adjusted). However, if interest rates are higher at the time of withdrawal than at the time of policy issue, the cash surrender value will be reduced. Ultimately, the MVA is a risk-mitigation feature that allows the insurance company to offer an annuity so that the annuity purchaser can take advantage of higher credited rates if they are willing to accept the risk that they may receive less money than anticipated should they withdraw more than their penalty-free withdrawal amount.
Sharing of risk
