Yuan for insurance – Newspaper Kommersant No. 193 (7394) dated 10/18/2022
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Insurance companies have begun offering endowment life insurance (LI) policies to customers with a yuan-denominated strategy. The appearance of such products is caused by demand from customers and the ability to diversify investments against the backdrop of moving away from the “toxic” dollar and euro. However, the yield on such instruments is low, options for asset allocation are still limited, and they themselves bear currency risk.
Last week, U-Life (former IC Yugoria-Life) offered its clients home insurance policies in yuan. Rosgosstrakh also has a similar product. Capital Life is considering the possibility of its introduction.
U-Life draws up a two-year policy, the minimum contribution under the contract is 9 thousand CNY (about 76 thousand rubles). In this case, payment is made in rubles, as well as insurance payment. The yield is fixed and is about 1.5% per annum. The HOA agreement in Rosgosstrakh is also concluded for two years and has a fixed yield of about 2% per annum.
Experts believe that the reason for the introduction of UA with a strategy in RMB is the demand of customers. Since March, banks have been actively opening deposits in yuan (see Kommersant of March 31 and September 1), and since July, large companies have placed bond issues in Chinese currency (see Kommersant of July 28). Against the backdrop of increased risks of holding funds in dollars and euros, the population is paying attention, in particular, to the Chinese yuan, so the appearance of an offer of policies in this currency looks like a logical reaction of insurers, VTB says.
The HOA provides insurance protection, as well as a number of benefits, including protection of the funds contributed from the claims of third parties and the taxation of personal income only the difference between the amount of insurance payment and the amount of paid insurance premiums increased by the rate of the Central Bank. Alla Borisova, Deputy Director of the Group of Ratings of Financial Institutions of ACRA, notes that RMB RMB may be of interest to investors for currency diversification of the portfolio.
According to the ARIA, in the first half of the year, the total amount of life insurers’ premiums decreased by 7.1%, to 233.2 billion rubles. Meanwhile, the segment of life insurance showed significant growth (by 73%), while fees in the investment life insurance and credit life insurance (CLS) segments decreased by 49% and 28%, respectively (see Kommersant of August 11).
According to Oksana Tikhanova, product manager of the RESO-Garantiya personal insurance department, insurers are trying to choose a new currency on which to build an investment strategy for clients. Acting General Director of BCS Life Insurance, Ivan Denisov, adds that the choice of assets is small and mainly it is either corporate bonds or bank deposits in yuan.
According to the Finuslugi service of the Moscow Exchange, at the moment, deposits in yuan can be opened in 15 banks from the top 50, but in many the rates are quite modest: 0.8–1.2% per annum. According to Kommersant’s interlocutor in a large management company, the most logical way is “to place funds in corporate bonds denominated in yuan, traded on the Moscow Exchange.” In this case, the insurer bears no foreign exchange risk and has a positive interest margin, he notes. However, now only five issues of four issuers are available, and the yield on them is about 3% per annum.
However, in the formation of such products, companies incur certain costs. According to Ivan Denisov, the insurance company will have to spend part of the profitability to compensate for costs and provide insurance coverage. In addition, Igor Alutin, managing director of the Finuslugi project, clarifies that the exchange rate of the Chinese yuan is unstable. Since the beginning of the year, it has lost almost 30% of its value against the ruble.
According to Anna Avakimyan, Chief Analyst of RegBlock, in such conditions there is a possibility of “failure to achieve the target profitability or the occurrence of lost profits within the framework of the adopted investment strategy.” Also, Ekaterina Tokareva, a partner at the Pen & Paper Bar Association, notes that contributions for endowment insurance are not insured by the state, therefore, when the license is revoked from the insurer, the insured does not have guarantees for the return of funds, unlike bank deposits.
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