The Vice-President of the Republic, José de Alencar, exercising the office of President of the Republic, sanctioned, on January 15 2007, Supplementary Law No. 126/2007 (the “Supplementary Law”), belatedly opening the Brazilian reinsurance market (which until then was monopolised by State-controlled IRB-Brasil Resseguros S.A.). The Supplementary Law deals with the reinsurance and retrocession policy and intermediation thereof, as well as with co-insurance, the contracting of insurance abroad and foreign currency transactions in the insurance markets. In accordance with the Supplementary Law, the regulation of co-insurance, reinsurance and retrocession transactions and their intermediation will be the task for the insurance regulator, i.e., the National Private Insurance Council (“CNSP”). It is expected that CNSP will issue the regulations required under the Supplementary Law within the next six months. The supervision of co-insurance, reinsurance and retrocession transactions and their intermediation is to be taken care of by the insurance supervisory body, i.e., the Brazilian Private Insurance Superintendence (“SUSEP”). The Supplementary Law contemplates three different types of reinsurance companies being authorized to operate in Brazil: (i) the local reinsurer: namely, the reinsurer with registered offices in Brazil and incorporated as a corporation [S.A. (Sociedade por Ações)] with the sole purpose of conducting reinsurance and retrocession transactions; (ii) the admitted reinsurer: namely, the reinsurer with registered offices abroad and with a representative office in Brazil, which, in compliance with the requirements of the Suplementary Law and the rules applicable to reinsurance and retrocession activities, has registered as such with SUSEP for the conduction of reinsurance and retrocession transactions; and (iii) the eventual reinsurer: namely, the foreign reinsurance company with registered offices abroad without a representative office in Brazil, which, upon complying with the requirements established in the Supplementary Law and with the rules applicable to reinsurance and retrocession activities, has registered as such with SUSEP to conduct reinsurance and retrocession transactions. It is important to highlight that foreign companies with registered offices in tax havens (defined as countries or territories that do not tax income or that tax income at a rate lower than 20% or, further, whose domestic legislation provides for corporate shareholding or ownership secrecy) (Brazilian blacklist of tax havens attached hereto) shall be prohibited from registering as eventual reinsurers. Decree-Law No. 73/1966 (which enjoys the status of a supplementary law and has governed the Brazilian insurance market for more than 40 years) and the laws and rules applicable to insurance companies, including those regarding company intervention and liquidation, mandate and directors’ and officers´ liability, as well as the provisions that will be established by the CNSP, are applicable to local reinsurers, having regard technical, contractual and operational specifications and of the risk of such type of activity. In turn, admitted or eventual reinsurers must satisfy the following minimum requirements to be registered as such with SUSEP: (i) be incorporated, under the laws of their country of origin, to underwrite local and international reinsurance in the fields in which they intend to operate in Brazil and have commenced such operations in their country of origin for more than 5 (five) years; (ii) not have less economic and financial capacity than the minimum established by CNSP; (iii) have a solvency rating provided by a rating agency recognized by SUSEP equal to or greater than the minimum established by CNSP; (iv) appoint an attorney-in-fact domiciled in Brazil with broad administrative and judicial powers, including powers to receive summons, to whom all notifications must be sent; and (v) comply with other requirements ultimately established by the CNSP. Furthermore, admitted reinsurers shall also have to: (vi) hold a foreign currency account bound to SUSEP in the form and in the amount defined by the CNSP to secure their operations in Brazil; and (vii) periodically submit their financial statements, in the form defined by CNSP. The Supplementary Law also establishes that ceding companies shall preferably contract with or offer to local reinsurers, at least: (i) 60% (sixty percent) of their reinsurance assignments in the first three years following the entering into force of the Supplementary Law (i.e., 16th January 2007); and (ii) 40% (forty percent) of their reinsurance assignments after the three-year period following the entering into force of the Supplementary Law (i.e. 16th January 2007). Ceding companies, local reinsurers, representative offices of admitted reinsures, insurance, reinsurance and retrocession brokers and brokerage companies, and the providers of independent auditing services, as well as any individuals or corporate entities failing to comply with the rules governing the reinsurance, retrocession and reinsurance brokerage businesses shall be subject to the penalties established by Decree-Law No. 73/1966 and imposed by SUSEP, as per the regulations established by the CNSP. It is also important to note that IRB-Brasil Resseguros S.A. is still authorized by the Supplementary Law to continue carrying on its reinsurance and retrocession activities, without any interruption, irrespective of any formal application or governmental authorization. Accordingly, IRB is sole local reinsurer up to the moment (and is yet to be privatized). In this regard, article 23 of the Supplementary Law contemplates that the Federal Union is authorized to offer to the preferred shareholders of IRB-Brasil Resseguros S.A. (local insurance companies), upon a pertinent corporate resolution being issued, the option to withdraw the capital invested therein for the sole and exclusive purpose of utilizing all of such funds to subscribe shares of any reinsurance company with registered offices in Brazil. IRB, whose total issued premiums in 2005 amounted to R$ 2.9 billion, is the principal reinsurance company in the region and is ranked in 40th place amongst insurance and reinsurance companies worldwide. Further, the Brazilian insurance and reinsurance market is constantly growing. The volume of premiums increased from (i) 2.5% of Brazilian GDP in 1995; (ii) 2.98% of Brazilian GDP in 2000; to (iii) 3.39% of Brazilian GDP in 2005. Therefore, the opening of the reinsurance market will certainly attract many other insurance and reinsurance companies to the Brazilian market. Felsberg e Associados continues to follow-up the above-mentioned market-opening process and shall keep clients and any interested parties informed of any new rules in this regard established by CNSP and SUSEP.