Solvency II Solvency Capital Requirement for life insurance companies based on Expected Shortfall

This paper examines the consequences for a life annuity insurance company if the Solvency II Solvency Capital Requirements (SCR) are calibrated based on Expected Shortfall (ES) instead of Value-at-Risk (VaR). We focus on the risk modules of the SCRs for the three risk classes equity risk, interest rate risk and longevity risk. The stress scenarios are determined as proposed by EIOPA in 2014. We apply the stress-scenarios for these three risk classes to a citations life annuity insurance company. We find that for EIOPA's current quantile 99.5% of the Value-at-Risk, the stress scenarios of the various risk classes based on Expected Shortfall are close to the stress scenarios based on Value-at-Risk. Might EIOPA choose to calibrate the stress scenarios on a smaller quantile, the longevity SCR is relatively larger and the equity SCR is relatively smaller if Expected Shortfall is used instead of Value-at-Risk. We derive the same conclusion if stress scenarios are determined with empirical stress scenarios.