theBrazilian governments first privatization attempt initiated in the late 1990s.However, the sale ended up being shelved after it was interrupted by a lawsuitin Brazils Supreme Court and the government failed to pass the legislationrequired to end IRBs reinsurance monopoly.This time,Swiss Re is taking a cautious approach until the conditions of the sale becomeclearer, the first source said. It is watching the IRB process with interest,and could end up participating, but the odds of a deal are less than 50/50, thesecond Swiss Re source said. The company does not want to go through anotherfailed process or one where there is a significant amount of governmentcontrol, the second source added.The level ofgovernment involvement in the privatized company will be defined in a new setof bylaws, which will be discussed by IRBs shareholders at an extraordinarygeneral meeting on 16 May, according to a public notice published by IRB today.Shareholderswill also discuss in the meeting a capital increase of up to BRL 203m, or 15% ofshareholders' equity, through the issue of new common shares, at a price of BRL2,577 per share, according to the notice. In theory, current shareholders maybe further diluted in the capital increase to accommodate a new investor, saida source familiar with the situation. However, current preferred shareholderswill have preference rights in the offer, according to regulatory filings.The governmentis pushing for the privatization to move forward in a timely manner, the sourcefamiliar with the situation said. According to an article published in thelocal magazine Exame, the government plans to finish the privatization processby year-end.Swiss Re stillhas a small market share in Brazils nascent free market for reinsurance, butit is possible and maybe even preferable to grow organically, the first sourcesaid. The end of the market monopoly in 2008 and increased investment andindustry development have opened up organic growth opportunities that were notavailable in 2001, the second source explained."If I hadto handicap it, I would think that either a foreign company looking to enterthe market or local Brazilians would be the most likely buyers now," thesecond source said.A sectorbanker, while unaware of any concrete plans of Swiss Re, noted that a number ofEuropean insurance firms, including Zurich Insurance Group of Switzerland, havebeen acquiring in Brazil over the last few years. It would make sense for SwissRe to follow suit. Additionally, Swiss Re acquired a majority stake in BrazilsUBF Seguros in 2010 and could build on this platform, the banker added.IRBsshareholder equity is equally divided between common and preferred shares. TheBrazilian Treasury owns 100% of the common shares, while the majority of preferredshares is owned by the insurance arms of Brazils two largest private sectorbanks, Bradesco and Itau. Small stakes are held by the investment bank BTGPactual, the state-owned banks Banco do Brasil and CEF, and 60 other insurancecompanies, according to a regulatory filing.According tothe Brazilian governments bidding rules, all preferred shares will beconverted to common shares at a 1:1 ratio, and the government will not exerciseits preference rights in the capital increase. It will own a golden share whosevoting powers will be specified in the new set of bylaws. The new controllingshareholders have to