What is a Market Value Adjustment (MVA) in relation to an accumulation annuity?

A Market Value Adjustment (MVA) in the context of an accumulation annuity is fundamentally linked to interest rates. Specifically, it refers to a mechanism that adjusts the value of the annuity's account based on fluctuations in the market interest rates at the time of a withdrawal or surrender of the contract before its maturity.

When market interest rates rise, the value of an existing contract that offers lower fixed interest rates may be negatively affected, leading to a reduction in its market value. Conversely, if interest rates fall, the contract may increase in value because it remains attractive compared to newly issued products with lower rates. This adjustment can be seen as a penalty or reward depending on the direction of interest rates relative to the rates being paid on the annuity.

Therefore, the MVA is specifically designed to reflect how changes in interest rates can impact the returns on the investment in the annuity, thereby providing a fair market-based perspective on the contract's value at any given time. This makes it a crucial factor for policyholders to understand, especially if they are considering early withdrawal or cancellation of their annuity.