International In-house Counsel Journal

Vol. 1, No. 2, July 2007, 114–116

Aviva embraces the bear – developing Aviva’s new Russian business

By LEE CALLAGHAN
Senior Corporate Lawyer, Aviva plc.

The purpose of this article is to examine what was involved in setting up a new
insurance company in Russia.
If it’s true that Russia’s constant companion has been unrest of some kind in its
recent and more distant past, then it’s also true that the Russian people and their
spirit have risen above various invading forces to a new found level of stability and
growth.
This is true whether it be the forces in the form of Vikings advancing from the
North, the Mongolian domination followed by invasion by the Poles, the Cossacks
or the Turks or whether as demonstrated more recently by the Russian nation
overcoming Napoleon’s forces and the more recent German campaign. The
Russian nation has found a new level of stability and order only dreamt about in
the past.
On any test, Russia is now transforming in a most dramatic way. As any recent
visitor to Moscow can describe there is a wholesale shift that is evident from the
large investment currently benefiting that city and it’s people. One of the favourite
past times of many Russians is the sport of ice fishing and this is often used to
demonstrate the hardiness and resilience of the Russian soul. The Russian people
are known for their courage and endurance. Anybody who has been to Moscow
during the coldest winter months or their short but very hot summers will
appreciate the difficulties and extremes that are imposed there just by climate
alone. It is also commonly said about Russians that whatever they do, friends
always come first and business and friendship are never far away. To be successful
in Russia you will need to have worked on and have developed relationships
in order to successfully achieve your business task locally. If Aviva were to
succeed in Russia then getting these relationships right would be vital. And so it
proved.
When Aviva decided to enter the Russian market, our goal was to establish a top
5 market position over a 5 year period. At that time, we had no local presence at all
and, even more challenging, the concept of life assurance was relatively under-
developed in Russia. There were few international insurers present in the market and
a very small number of national providers, although some of these had good scale.
As a first step, appointing a dedicated team with clear reporting lines was crucial.
We made sure that our team included Actuarial specialists (as nothing happens in
life assurance without them!) as well as Business development, I.T, H.R and Legal
representatives. We also recruited Russian speakers to our team and others in the
team (lawyers included) concentrated on learning Russian with support from our
employer.
When entering a new territory, I believe it is vital to also appoint local specialist
advisors. In our case, Aviva needed advisors locally with experience of market
conditions and practises as well as local regulatory requirements to ensure we

International In-house Counsel Journal

ISSN 1754-0607 print/ISSN 1754-0607 online
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received the appropriate approvals and consents. These specialists included Legal,
Accounting and HR services.
We were very clear what success looked like for the team so we knew we were all
working towards one agreed objective.
The team immediately set about establishing premises, setting up I.T. support and
began a search for suitable senior management candidates.
Aviva also wanted to build the Group’s brand identity locally (this in both
Western and Cyrillic form). We wanted to use the brand in discussions with
potential partners and made a deliberate decision to set up a representative office
locally under the Aviva brand as a representative office can be set up relatively
quickly, usually around 4 months.
This is a useful lesson for Groups with holding companies that don’t contain
their recognised brand name. You will not be permitted to use that brand locally
if it is not an existing part of your company name. However a representative office
cannot employ people as such (its not a legal entity in its own right and don’t
listen to those who might tell you otherwise) but they can be used as a quicker
route to getting marketing presence with future potential partners ahead of a
licence registration and approval process provided the representative office is not
involved in sales.
Whilst these work streams were in progress, work began on establishing a stand
alone new company in order to apply for an insurance licence. A closed joint stock
company (Zao in Russian) was chosen as the most flexible and appropriate vehicle.
It is essentially a limited company where are all the shares are held privately.
Preparing the licence application is a significant piece of work so this needs to be
started as soon as possible. There is a local requirement to inject a minimum amount
of share capital which is the equivalent to just over $2 million. Various bank
accounts will be required to be set up in the names of the founders of the
appropriate Zao and it became clear very quickly that if any part of the puzzle did
not fit exactly with what the authorities expected to see (and in this case it was
because one of the founders had a name change mid application) then this would
itself trigger a requirement to submit a further amended application. This might
mean that one of your board level approvals, shareholder resolutions, company
charter and indeed all the documents needed to open a bank account in Russia
might need to be changed before they can be submitted and the bank accounts
become live.
It was great credit to our team that, despite the need to change those names, the
timetable for the local company incorporation was not adversely affected as a result.
The last step taken was the submission of our licence application to the Russian
authorities on the 28th of October 2005. Although the licence application process
can potentially run for up to eight months, we were very pleased to have it granted
in March 2006.
Aviva is now committed to its long term growth plan and this lawyer continues to
enjoy his Russian lessons. Just don’t ask the lawyers to join in the ice fishing.

Lee Callaghan is a senior corporate lawyer with Aviva plc. Having spent his early
years at the Bar in London, he has spent the last 18 years in the commercial sector.
For the last 6 years, he has worked in the financial services sector with Aviva plc
where he has responsibility for UK and International M&A as well as EU
competition matters.
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Aviva is UK’s largest and the world’s fifth largest insurance group. The company is a
leading provider of life and pension and general insurance products and has substantial
businesses across, Europe, Asia and the US.

Lee Callaghan,
June 2007