Russians have always been interested in tools that protect against ruble devaluation. For decades, the main methods of diversification were buying foreign currency and investing in securities of foreign companies. There was great demand for foreign currency life insurance programs. In 2022, using such tools has become too risky or completely impossible. This situation shifted the market’s focus to alternative currencies and, above all, to the yuan.
As a result, the yuan’s share in the Russian foreign exchange market reached almost 40% by the end of 2022 and continued to grow in 2023. And in August 2023, the Central Bank of the Russian Federation changed the exchange rates on its website: now not the dollar comes first, but the yuan.
In 2016, the International Monetary Fund recognized the yuan as a reserve currency, confirming the success of Chinese economic reforms. Thus, the yuan entered the SDR basket along with the US dollar, euro, Japanese yen and British pound.
On July 21, 2005, China stopped pegging its national currency to the US dollar. Since then, the yuan exchange rate has been determined by its relationship with a currency basket of 13 countries that are its main trading partners.
Although pegging the yuan to various currencies increases the country’s sensitivity to global economic conditions, it does not threaten the stability of the country’s financial system. In fact, the yuan is under the control of the PRC, which makes this currency a reliable means of payment and reduces the risks of investing in it.
All this gives reason to believe that, despite the force majeure on world markets, the yuan will remain stable and avoid significant declines.
In 2022, life insurers chose the yuan as the main currency for investment and insurance customer products. Many companies have launched yuan-denominated investment and savings life insurance programs (ISHI and HCLI) and unit-linked programs (UDG) to help customers who want to move away from the dollar and euro and also diversify their investments.
As for RMB in yuan, the programs provide a guaranteed income, while part of the funds is sent directly to insurance protection against risks specified in the contract. The benefit of investing in them depends on both the interest rate applied and the exchange rate of the yuan to the ruble. On average, the profitability of such programs varies between 3% and 6% annually.
Fractional life insurance products denominated in yuan are expected to appear on the Russian market in the near future. Such strategies will allow you to invest in yuan bonds issued by Russian issuers. This will give conservative investors the opportunity to diversify their investment portfolios. The profitability of DSG strategies in yuan is expected to be 4-4.5% annually. To protect against devaluation, calculations will be made in rubles, and income dynamics will be determined by changes in the exchange rate. The advantage of the strategy will be the absence of taxes on currency revaluation.
Placing corporate bonds denominated in yuan and traded on the Moscow Stock Exchange is now one of the most suitable conservative strategies. Major domestic companies have already issued about 30 yuan-denominated bonds. For now, these are corporate securities, but government OFZs may soon be added to them.
Therefore, it is clear that the use of the Chinese yuan and other currencies of friendly countries in insurance products will expand and determine the development of the Russian life insurance market as a whole.