Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Life Health > Annuities > Fixed Annuities

Fixed with a moving part

Your article was successfully shared with the contacts you provided.

Given the prevailing interest rate environment, it’s not surprising that sales of all types of fixed annuities fell 5 percent in 2006, according to figures from LIMRA International. What some might find surprising is that while sales of book-value fixed annuities dropped 11 percent last year, sales of products with a market value adjustment (MVA) feature grew 72 percent, according to Beacon Research, an Illinois-based research firm.

Like a book-value fixed annuity, an MVA-based fixed annuity pays a declared rate of interest for a specified period. But unlike book-value contracts, they also include a provision under which account value may be adjusted positively or negatively at the time of partial or full surrender. The adjustment is tied to the movement of a benchmark interest rate over the life of the contract. An increase in the benchmark rate means the contract’s account value will be adjusted lower, while a drop in the rate means an upward adjustment in account value.

So investors who expect the benchmark rate to fall during the term of the contract might prefer an MVA-based fixed annuity to give themselves more potential upside than a straight book-value product. However, in buying an MVA they also expose themselves to downside risk.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.