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Discontinuance feature – Market Value Adjustments


A Market Value Adjustment (“MVA”) is a common discontinuance feature added on to multi-year guaranteed fixed deferred annuities in the USA. Such an annuity guarantees a specified credited interest rate for a fixed period.

Upon the surrender of a fixed annuity the MVA is applied in addition to any surrender charges. The MVA adjustment will be positive in the case of interest rates being lower at surrender than at purchase and negative in the case of interest rates being higher at surrender than at purchase. When purchasing a fixed annuity with MVA the policyholder is effectively assuming the interest-rate risk. In return, the credited interest rates offered on fixed annuities with MVA are generally slightly higher than that offered on a fixed annuity without MVA.

In a rising interest environment where policyholders might want to take advantage of locking into higher guaranteed credited rates by surrendering their existing fixed annuities, the MVA will provide protection to the insurer who could be losing money when having to sell investments at a discount in order to pay out the surrender value.

Please see the links below for articles on sales of Fixed Annuities with MVA as well as the an explanation of Fixed Annuities with MVA by an insurer selling these contracts:


7 thoughts on “Discontinuance feature – Market Value Adjustments

  1. How does the MVA work
     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%).

  2. How do they determine the interest?

    The interest rate is implied by the current market price of annuity contracts

  3. What need in the market lead to this product? Does what need does it satisfy?

    It caters for the need to speculate on interest rate changes, where the policy holder assumes the risk of the change and could receive a greater surrender value on withdrawal.

  4. How do they determine the interest rate?

    The interest rate is implied by the current market price of annuity contracts

  5. How to calculate the MVA?
    There are five steps to calculate the MVA:
    1. Find the interest rate that was relevant at the time you bought the investment.
    2. Find the present interest rate that will be applied to your policy or investment.
    3. Compare the differences between the two rates to determine whether a profit or loss will be made. If the rates are identical, then the money you get will be exactly the amount you initially invested.
    4. Find the present value of the investment relative to the change in rates. This is the mode of calculating its present value
    5. Subtract, or add, the value of the investment from the demand-based new value.

    Tut group 8

  6. If you are guaranteed high interest rates all the time, why would you not choose MVAs all the time?

    If MVA annuities pay a higher rate, why buy anything else? Because, if interest rates go up and you decide to break an MVA contract to take advantage of a fixed annuity that offers the new rate, you’ll pay a bigger penalty than if you broke a book value contract.

    The MVA triggers two penalties when you withdraw too much money (over 10 percent, in most cases) from your annuity during the surrender period. Typically:

    •You have to pay a surrender charge (for example, equal to the number of years left in the surrender period)

    •Your account value is adjusted

    Tut group 8

  7. How are death benefits calculated ? Not subject to market value interest rates ?

    There is no death benefit. The surrender value is increased/decreased by the MVA factor, depending on whether interest rates fall or raise.

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