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Aviva Seeks Russian Insurers at 25% Pre-Crisis Price

March 5 (Bloomberg) -- Aviva Plc, the U.K.’s second-biggest insurer, is seeking to buy Russian competitors at less than a quarter of their price before the global credit crisis, said Andrei Dubinin, chief executive officer of Aviva Russia.

Local insurers can be bought for the equivalent of their annual revenue from premiums or less, compared with four times before the crisis hit Russia in September 2008, Dubinin said in an interview at the company’s Moscow office.
“We are monitoring new opportunities,” said Dubinin, without identifying possible targets. “Russia is a key market for us because it’s the most populated country in Europe with a very low level of penetration.”
Aviva, which boughtING Groep NV’s Russian pensions business in April, expects to triple the value of its insurance and retirement assets to $450 million this year and increase its share of the country’s $15 billion corporate pensions market, Dubinin said. The push is part of a global drive by the London- based company into faster growing emerging markets including South Korea, Taiwan, Indonesia and Vietnam.
Valuations on Russian insurers have dropped after the economy shrank by a record 7.9 percent in 2009 after the worst global recession since the Great Depression drove investors from riskier developing-nation assets. The lack of market funding forced the government to provide more than 4 trillion rubles ($134 billion) of unsecured loans to banks and take over Svyaz and Globex, two of the country’s top 50 lenders by assets.
Fortis, the owner of Belgium’s biggest life insurer, pulled out of Russia last year.
Captive Market
Economic growth in Russia may reach 5 percent this year, First Deputy Central Bank Chairman Alexei Ulyukayev said in January, predicting a revival in bank lending. The recovery is being spurred by a near doubling in the price of Urals crude, Russia’s biggest export earner, from the low-point a year ago.
The pensions business will expand as listed Russian companies switch to retirement funds in which the amount invested is decided by the employee, known as defined- contribution plans. Independent pension providers stand to benefit as companies will need to pick outside fund managers, Dubinin said.
“Captive” corporate pension funds, run internally by companies, make up most of the Russian savings market at 450 billion rubles, or 40 times the assets in independent funds, according to Aviva.
“Our bet is that captive pension funds will be replaced with independent professional providers when their owners -- big industrial conglomerates -- go through IPOs and the market has stabilized,” Dubinin said.
Tsarist Times
While Aviva opened its office in Moscow in 2006, the company’s history dates to the Tsarist era. The insurance group worked in Russia through its Commercial Union and Norwich Union units until 1918, when all financial institutions were nationalized after the Bolshevik Revolution, said Dubinin, who has a framed copy of a life insurance policy dated 1857 for Osip Govorukhin from the Volga region town of Elabuga on his wall.
Aviva is focused nowadays on corporate clients. The company has 200 corporate customers and “serves half of the Fortune 500 active in Russia,” Dubinin, 46, said.
Aviva picked Troika Dialog Asset Management last year to handle its pension fund investments. Most of the funds are invested in government, municipal and corporate bonds, Dubinin said. The company also works with General Electric Co., Trust Bank, UniCredit SpA and OAO MDM Bank to distribute its products.