Symmetric adjustment of the equity capital charge under Solvency II – Analysis and forecast for 2022

The Solvency II capital charge has become an important aspect in portfolio construction and asset allocation for insurance companies, next to the traditional trade-off between risk and return. For most assets, the capital charge is fixed and known upfront. However, for equities a capital charge with a variable component – the symmetric adjustment – is used. We discuss the current mechanism and possible changes in the Solvency II review. We also make a projection for the remainder of 2022 and find that the symmetric adjustment remains in slightly positive territory for the rest of 2022 in case of positive equity returns. In a negative equity scenario the symmetric adjustment is expected to become negative at the end of this year, however.

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