What is MVR?
MVR stands for Market Value Reduction. It is a process or a way for certain insurance companies to make sure that investors who wish to take out their funds do not get more than what is considered fair for them. Being “fair” in this instance is based on the current value of the assets invested upon using the “with-profit” type of policy. MVR also serves as protection for the remaining investors of a particular insurance company in cases where investment returns are quite low. Others call MVR as MVA or Market Value Adjustment. In some instances MVR is also called SVR or Surrender Value Reduction.
With-profit policies refer to insurance policies that have involvement with the insurance companies’ profits. This is the reason why policy holders or investors of this type of policy will be subjected to MVR or Market Value Reduction when they decide to withdraw their investment. And during poor investment performance or returns, the insurance company will need to make adjustments to the market value of the asset/s involved to make sure that the withdrawing investor will not get more than his/her fair share of the investment and to ensure that remaining policy holders and investors are protected also.
MVRs are usually applied by insurance companies during prolonged periods of poor market standings. If this scenario happens, an imbalance will result with regards to the annual bonuses for payout versus the actual returns or earnings of the investment fund. Through MVR, all payouts to investors will be adjusted according the actual market value and will be somewhat aligned to the actual investment returns. If a particular bonus or investor payout is too big than the actual market value, then the other remaining investors will have less money for their payouts when they decide to withdraw from the investment fund. Through MVR, the payouts to withdrawing investors will be balanced and based on real market values to protect remaining investors of a particular investment or policy.