Which of the following best describes market risk in the context of variable annuities?

Market risk in the context of variable annuities refers specifically to the potential for investment losses due to changes in market conditions. With variable annuities, the value of the investment is tied to the performance of underlying assets, such as stocks and bonds. If these market investments decline in value, the overall value of the variable annuity may also decrease. This means that the policyholder faces the possibility of losing value in their investment as a direct result of market fluctuations, making it a central aspect of market risk.

For option B to be the best description, it effectively captures the essence of market risk, emphasizing the reliance on market performance. Understanding this concept is crucial for individuals considering variable annuities, as they should be aware that their investment could rise or fall in line with market behavior.