Understanding Market Value Adjustment

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Learn about Market Value Adjustments in fixed annuities. Discover how they impact your retirement planning. Explore more at SafeMoney.com. Have you heard of a “market value adjustment” when researching annuities? A market value adjustment is a contract feature that comes with annuities of the fixed variety. Generally you will find it attached to traditional fixed annuities and indexed annuities. A contract with this feature is called a “ market value adjusted annuity ,” or an MVA annuity for short. MVA annuities tend to offer higher interest rates than regular fixed annuities do. With a market value adjustment feature in the contract, the insurance company shares some of its investment risk with an annuity policyholder. In exchange, the policyholder may enjoy more chances for growth potential than a regular fixed contract may provide. That being said, the market value adjustment factor applies typically to excess contract withdrawals and surrender charges . And depending on the interest rate environment, an MVA may be positive or negative, which can increase or decrease a surrender charge amount.  The insurance company uses the market value adjustment factor as a safeguard against annuity contract surrenders and, in turn, to maintain its financial strength. That way it can maintain its contractual guarantees and promises made to its annuity policyholders. Let’s look more at what a market value adjustment involves — and how it may be beneficial or negative. Why are Interest Rates Important?  A market value adjustment may be positive or negative. It depends on whether interest rates are up or down since the date of annuity purchase. When setting the adjustment factor, insurance carriers look to the 10-year Treasury: If 10-year Treasury rates have gone down from when the contract was issued, the market value adjustment will be negative. Should 10-year Treasury rates have gone up from when the contract was issued, it will cause the market value adjustment to be positive. That could make a surrender charge higher or lower, depending on whether the MVA is positive or negative. While this can be less than appealing, it’s also a form of protection for insurance carriers and its policyholders. Early contract surrenders may disrupt the investment sch