Market value adjuster (MVA) explained
The MVA is a deduction which may be made from money which is taken out of a unitised
with-profits fund to protect the interests of remaining investors when market conditions
are low. When applied the MVA is in addition to other charges on the policy.
An investment in a with-profits fund should be viewed as a medium to long-term investment.
A with-profits fund is invested partly in equity-type investments, which fluctuate
in price over the short term. Our overall aim is to provide good, long-term returns
to investors by smoothing out the effects of these short-term market fluctuations.
Over long periods it can be expected that the bonus rates will be set so that the
growth in value of the units and the growth in value of the underlying assets of
the policy are similar, but in the shorter term there can be significant differences.
Therefore, in order to protect the interests of remaining investors, there will
be periods when it is necessary to reduce the amount payable when money is taken
out of the with-profits fund. This will be through the use of the MVA, which brings
the amount paid more closely in line with the value of the underlying assets.
In this way the continuing investors are protected from a reduction in their return
which would occur if excessive payments were made to shorter-term investors.
Your policy guarantees that in certain circumstances, for instance at the end of
a specified policy term or on earlier death, the MVA will not be applied. There
may be other circumstances depending on the type of policy: please refer to your
policy literature.
The MVA is applied when we believe there is an opportunity for some investors to
take money out of the offshore with-profits fund to gain an advantage against the
remaining investors.
In determining whether the MVA needs to be applied, and at what level, we take into
account the investment conditions. The MVA is most likely to be used following a
sustained fall in investment markets. An MVA may be applied if there is a significant
difference between the bonuses applied and the total return on the underlying assets
over the period of investment.
In addition, we may also take into account the amount taken from the offshore with-profits
fund in respect of your policy, including any other amounts withdrawn in the previous
12 months.
We pay bonuses which are intended to share out fairly the fund’s performance between
its investors. The main factor that determines the final payout is the investment
performance of the assets that make up the Offshore With-Profits Fund. Other factors
include a deduction that may be made to help ensure that guarantees are met on policies
across the whole fund.