Market Value Adjustment (MVA)
A contract provision that raises or lowers the amount received on early withdrawal based on interest rate movement since issue.
A market value adjustment (MVA) is a contract provision that raises or lowers the amount payable when you withdraw more than the free amount before the end of the surrender period, based on how interest rates have moved since the contract was issued. If rates have risen since issue, the adjustment is generally negative. If rates have fallen, it is generally positive. The MVA is separate from, and applied in addition to, any surrender charge.
- —An MVA is a rate-driven adjustment, not a fee the carrier keeps as profit - it exists to protect the carrier's bond portfolio from early withdrawals.
- —Rates up since issue means a downward adjustment; rates down since issue means an upward one.
- —MVAs almost always apply only to amounts above the free-withdrawal allowance and only during the surrender period.
- —Many contracts waive the MVA at death, at annuitization, and in nursing-home or terminal-illness situations. The waivers are contract-specific.
An MVA is applied in addition to any surrender charge. In a rising-rate environment it generally works against the owner on early exit; in a falling-rate environment it can work in their favour.
Not every contract has one. Where it exists, the formula appears in the contract documents and should be read alongside the surrender schedule rather than instead of it.
Why carriers use a market value adjustment
When a carrier issues a multi-year guaranteed annuity or a fixed indexed annuity, it buys bonds with maturities roughly matched to the guarantee period. Those bonds fund the promised credits. If a large number of contract owners withdraw early after rates have risen, the carrier would have to sell bonds that are now worth less than it paid, and the remaining contract owners would absorb the difference.
The MVA passes that interest-rate consequence back to the owner who is leaving early rather than spreading it across everyone who stays. That is why an MVA can cut in the owner's favour: if rates have fallen and the carrier's bonds are worth more, an early exit produces a positive adjustment.
How the adjustment is generally calculated
Formulas vary by contract, but nearly all of them compare a reference rate at issue with the same reference rate at withdrawal, then scale the difference by the time left in the surrender period. The longer the remaining term, the larger the adjustment in either direction.
The reference is usually an index the carrier names in the contract - commonly a Treasury yield or a corporate bond index at a stated maturity - plus or minus a spread. Because the exact formula and reference are written into the contract, the only reliable source for your own figure is your own contract language and a carrier-provided calculation.
| Rates since issue | Typical MVA direction | Effect on amount payable |
|---|---|---|
| Higher | Negative | Reduces the amount you receive above the free amount |
| Roughly unchanged | Near zero | Little practical effect |
| Lower | Positive | Increases the amount you receive above the free amount |
Where an MVA shows up in a contract review
In a five-pillar review, the MVA sits under liquidity alongside the surrender schedule and the free-withdrawal allowance. Two contracts with identical surrender charges can have very different real exit costs if one carries an MVA and the other does not.
The practical question is not whether an MVA is good or bad, but whether the owner knows it exists, knows the direction it currently points, and knows the date it stops applying. Many owners discover the provision only at the moment they request funds.
- —Confirm whether the contract has an MVA at all - not every fixed annuity does.
- —Confirm whether it applies to the free-withdrawal amount or only above it.
- —Confirm the waiver events: death, annuitization, confinement, terminal illness.
- —Confirm the date the surrender period - and with it the MVA - ends.
Frequently asked questions
- Is a market value adjustment the same as a surrender charge?
- No. A surrender charge is a declining percentage set at issue and always works against the owner. An MVA is a rate-driven adjustment that can move in either direction and is applied in addition to any surrender charge.
- Can a market value adjustment be positive?
- Yes. If prevailing interest rates are lower at the time of withdrawal than they were when the contract was issued, the adjustment is generally positive and increases the amount payable above the free amount.
- Does an MVA apply after the surrender period ends?
- In the great majority of contracts, no. The MVA and the surrender charge both terminate at the end of the surrender period. Some contracts with multi-year rate windows can reset a new adjustment period, so the contract language governs.
- Are market value adjustments waived at death?
- Commonly yes, but this is contract-specific. Death, annuitization over a stated minimum period, nursing-home confinement, and terminal illness are the four most frequent waiver triggers.