Which statement most accurately describes a market value adjusted annuity (MVA)?

A market value adjusted annuity (MVA) is designed to provide a mechanism that aligns the value of the annuity with current market conditions. This type of annuity includes a feature that adjusts the value if the contract owner decides to surrender the annuity before its maturity.

When interest rates rise, the MVA effectively discourages owners from surrendering their contracts because doing so may result in a financial loss. This is because the surrender value of the annuity is likely to be reduced to reflect the losses incurred due to the increase in rates and the need to adjust for market value. Thus, owners might find it more beneficial to keep their annuity rather than incur penalties or losses, especially if they have locked in a higher interest rate than what may be available in the current market.

This structure helps maintain the longevity of the contract and protects the insurer from potential large-scale surrenders during periods of rising interest rates.