In general, the Portuguese public continues to buy insurance coverage only when required by law or by contract.
The Portuguese insurance market can be characterised by the dominance of local insurers with deep ties to the banking retail business.
The 2015 overall technical result of insurance undertakings under the prudential supervision of the Portuguese Insurance and Pension Funds Supervisory Authority (ASF) totalled €580 million, an increase of 41.4 per cent compared with 2014. This variation was mainly triggered by an increase of 508 per cent in the non-life technical result, to €86.4 million, although the life technical result has also increased by 24.6 per cent, settling at €493 million. The global premiums written by the same set of undertakings recorded an 11.1 per cent decrease, while the required solvency margin reached 228 per cent.
As to the financial position of the insurance companies, in 2015, total assets decreased by 2 per cent, while total liabilities declined at a higher rate of 2.7 per cent. Consequently, total equity increased by 6 per cent in comparison with the previous year.
Notwithstanding the increased regulatory burden, the changes introduced by the implementation of Solvency II will most probably trigger positive developments in the Portuguese insurance sector in the long term (e.g., increased competitiveness and the introduction of new products in the market).
The ASF is the competent authority for the regulation and the prudential and behavioural supervision of the insurance, reinsurance, pension funds (and corresponding managing entities), and insurance and reinsurance intermediation activities.
The main goal of the ASF is to ensure the sound functioning of the Portuguese insurance and pension funds markets, by contributing to the protection of the interests of the policyholders, insured persons and beneficiaries. This goal is pursued by promoting the financial stability and soundness of all institutions under its supervision, as well as ensuring the maintenance by all market operators of high standards of conduct.
The Portuguese Securities Exchange and Market Commission also has some supervisory powers in respect of conduct rules relating to unit linked life insurance products and operations. The ASF's supervisory powers on other matters (e.g., taking up and pursuit of the insurance business, governance, financial guarantees) over insurance undertakings offering unit-linked life insurance products and operations remain unchanged.
The taking up and pursuit of the insurance and reinsurance business is mainly governed by Law No. 147/2015, of 9 September (Law No. 147/2015), implementing into Portuguese law the Solvency II Directive, which sets out the main rules on, inter alia:
- a authorisation of undertakings;
- b solvency and other financial guarantees;
- c suitability and appropriateness of directors;
- d acquisition of qualifying holdings;
- e systems and controls for the conduct of the insurance and reinsurance business;
- f protection of policyholders, insured persons and beneficiaries (e.g., resolution of complaints); and
- g the inspection and sanction of infractions.
In turn, pension funds and their managing entities are governed by Decree-Law No. 12/2006 of 20 January, as amended.
The insurance and reinsurance intermediation activities are governed by Decree-Law No. 144/2006 of 31 July, as amended (which implemented into Portuguese law the Insurance Mediation Directive) (DL 144/2006) and its implementing ASF Regulation No. 17/2006-R of 29 December, as amended.
i Position of non-admitted insurers
The pursuit, on a professional basis, of the insurance activity in the Portuguese territory is deemed as a regulated activity, reserved exclusively to duly authorised insurance undertakings. Foreign insurers may only conclude insurance agreements covering risks or commitments situated in Portugal if the corresponding procedure for the pursuit of the insurance business under the freedom to provide services or right of establishment rules, as the case may be, is duly met (single licence principle). Insurers in the European Economic Area are subject to the financial and legal supervision of their home countries, and also to the legal supervision of the ASF in respect of their Portuguese operations.
The pursuit of the insurance activity within the Portuguese territory by a non-authorised entity shall be deemed as a serious administrative offence subject to a fine ranging from €7,500 to €1.5 million, plus ancillary sanctions.
The determination of the actual fine and ancillary sanctions is done in consideration of, inter alia, the material illegality of the act, the agent's fault, the benefits obtained and his or her previous conduct. The legal person may be responsible for the administrative offence even when the facts are carried out by the members of the corporate bodies, attorneys or employees in the exercise of their functions, or in the name of or on behalf of the legal entity. However, the liability of the legal person does not exclude the corresponding individual liability.
On the other hand, if the economic gain, doubled, is more than the maximum amount of the applicable fines referred to above, then the highest value shall prevail.
Policies issued by non-authorised insurers are null and void by law. However, the non-authorised insurer shall be required to cover the claim unless the policyholder acted in bad faith (i.e., was aware of the lack of authorisation of the insurer).
ii Position of brokers
Insurance brokers carry out insurance intermediation activities in an independent form regarding insurance undertakings, basing their activities on an impartial analysis of a sufficient number of insurance contracts available in the market that allows them to advise the client, taking into consideration the client's specific needs. See Section III.iv, infra, for further information on insurance intermediation in Portugal.
iii Requirements for authorisation
Only limited liability companies by shares, mutual or public institutions may obtain an insurance authorisation from the ASF. Companies that take the form of a European company may also pursue insurance and reinsurance activity.
Documents to be submitted with the application include, among others, a programme of activities describing the risks that are intended to be covered, the reinsurance policy, and financial information (including provisional balance sheets for each of the first three years of activity).
The ASF can issue appropriate and necessary orders to avoid deficiencies or bring any such deficiencies to an end and, if necessary, withdraw the insurer's authorisation.
Insurance undertakings based in the EU, which are duly authorised for the pursuit of their insurance activity within their country of incorporation, may pursue the insurance activity in Portugal under the EU freedom of establishment regime (as a branch) or on a freedom to provide services basis (without a permanent establishment in Portugal) without the need to obtain a specific authorisation from the ASF. The only requirement would be that the ASF is duly notified of the establishment of the branch or the commencement of activity on a freedom to provide services basis by the competent supervisory authority of the relevant home Member State, in line with the EU passport regime.
In turn, if an insurance undertaking incorporated outside the EU wishes to establish a branch in Portugal, it is required to obtain prior authorisation from the ASF.
iv Regulation of individuals employed by insurers
Individuals employed by insurers are subject to the same rules as any other employee, namely the Labour Code. In addition, insurance undertakings are bound by the collective bargaining agreements entered into for the insurance business. The Portuguese employment legal framework was traditionally regarded as relatively rigid and overprotective of employees' rights. However, since 2003, significant changes have been introduced with a view to increasing flexibility in labour relationships.
v The distribution of products
The pursuit, on a professional basis, of insurance intermediation activity in the Portuguese territory is deemed as a regulated activity reserved exclusively to duly authorised insurance intermediaries. Foreign intermediaries may only carry out insurance intermediation activity within the Portuguese territory if the corresponding procedure for the pursuit of insurance intermediation business under the freedom to provide services or right of establishment rules, as the case may be, is duly met (single licence principle).
vi Compulsory insurance (e.g., employers' liability)
Portuguese laws and regulations establish several different types of compulsory insurance including, but not limited to, third-party motor insurance, accidents at work insurance, fire damage insurance, life insurance for military or policy forces while abroad and professional liability (for auditors or lawyers) or high-income athletes. Compulsory civil liability is also required to obtain authorisation for the pursuit of certain business activities (such as industrial activity, private security firms, travel agencies, activities that are hazardous for the environment, leasing, transportation, childcare transport services or electricity generation) and for many other activities.
Portuguese insolvency laws applicable to the insolvency and liquidation of Portuguese insurance undertakings establish a protection framework based on preferences between different classes of creditors instead of a regime based on the existence of a guarantee fund (e.g., Spain with the Insurance Compensation Consortium).
In the event of insolvency or liquidation of an insurance undertaking, the insurance claims (i.e., all the amounts that represent a claim over the insurance undertaking of the policyholders, the insured, beneficiaries or any injured party having a direct right of action against the insurance undertaking under an agreement of the insurance activity (the amounts due by an insurance undertaking as a result of the renouncement of the insurance agreement by the policyholder are also included in the definition of ‘insurance claims')) take precedence over any other claims against the assets representing the technical reserves of the insurance company. As to the other assets of the insurance undertaking, insurance claims rank only below the claims of employees of the insurance undertaking arising from employment relationships and, regarding the non-life insurance business, claims on assets secured by rights in rem. As an exception to the foregoing, expenses arising from the winding-up procedures of the insurance undertaking take precedence over any claims against the insurance undertaking (including insurance claims).
This precedence implies that, in the event of insolvency of a Portuguese insurance undertaking, the policyholders shall, with the exceptions described above, have priority over the other creditors of the insurance undertaking.
viii Dispute resolution regimes (within the financial services context)
Portuguese insurance undertakings must receive and resolve any claims or complaints that are filed against them within the deadlines imposed by law. To this effect, insurance undertakings are required to put in place a written internal regulation on the management and settlement of complaints.
If the insurance undertaking fails to reply within these deadlines, or denies the claim or complaint, the interested party may file an appeal with the customer ombudsman (who must be appointed by the insurance undertaking or a group of insurance undertakings), who must handle and resolve the claims and complaints submitted to him or her within the deadlines imposed by law. Insurance undertakings must appoint a preferred interlocutor between the ASF and the customer ombudsman, and the identity of the customer ombudsman must be disclosed to the policyholders, insured persons, beneficiaries or any other interested party. After this period has elapsed, if the insured's claim or complaint is not answered or is dismissed, the claimant can submit a grievance to the complaints service of the ASF. The policy must indicate the insured's right to proceed in this way.
Also, any insurance undertaking with a customer service desk in Portugal must have a complaints book available for any customer.
ix Taxation of premiums
All applicable charges over insurance premiums under Portuguese law have been compiled by the ASF and are regularly updated.2
x Other notable regulated aspects of the industry (e.g., ownership, mergers, capital requirements)
Portuguese law does not establish any legal or regulatory limitation regarding the types of entities and individuals that may own a controlling interest in an insurance undertaking, other than the typical assessment by the ASF of the identity and suitability of its directly and indirectly qualified shareholders to ensure sound and prudent management of insurance undertakings.
The intention or project to acquire, directly or indirectly, a qualifying shareholding (i.e., a shareholding that is equal to or exceeds any of the thresholds of 10, 20, 33 or 50 per cent of the share capital or voting rights or that, by any means, allows for the exercise of a dominant influence in the management of the target insurance undertaking or in such a way that the target insurance undertaking becomes an affiliate of the other) in an insurance undertaking shall be notified in advance to the ASF.
The ASF may oppose such an acquisition if it considers:
- a that the acquirer does not meet the necessary conditions to guarantee sound and prudent management; or
- b if the information provided is not sufficient.
Furthermore, if the insurance undertaking is listed, the acquirer is subject to several disclosure information duties and, as the case may be (if the threshold of one-third of the voting rights corresponding to the share capital is exceeded), it can be required to launch a tender offer over all the shares issued by the insurance undertaking.
Mergers and insurance portfolio transfers that involve insurance undertakings operating in Portugal are subject to the prior authorisation of the ASF.
If any competition issue derives from the aforementioned acquisition of a qualifying shareholding or merger, a report from the Portuguese Competition Authority is also required. The Portuguese Competition Authority may oppose the transaction, or accept it but only with the fulfilment of certain conditions and remedies.
Portuguese law establishes that the following should be the minimum, fully paid-up, share capital for insurance undertakings:
- a insurance undertakings intending to pursue life assurance: €7.5 million;
- b insurance undertakings intending to pursue non-life insurance:
- €2.5 million for insurance classes of ‘sickness', ‘legal assistance' and ‘assistance';
- €7.5 million if the insurance undertaking intends to pursue more than one of the insurance classes referred to at (b) or any other non-life insurance class;
- c insurance undertakings intending to pursue life assurance together with one or more class of non-life insurance: €15 million;
- d assistance undertakings: €2.5 million; and
- e mutual insurance undertakings: €3.75 million.
In addition to the minimum share capital referred to above, insurance undertakings are required under Portuguese law to possess minimum amounts (as determined by law) of technical reserves and solvency capital. In addition, insurance undertakings must comply with the applicable framework, for prudential purposes, for the evaluation of their assets and liabilities, and their own funds and investments, as required by law.
III INSURANCE and REINSURANCE LAW
i Sources of law
Statutory law is the main source of law in the Portuguese legal system. Custom is also deemed as a source of law in the Portuguese legal system to the extent that the custom is not contrary to the general good faith principle. However, there are very few situations in which it is accepted that an implemented solution had custom as its source. There is, therefore, a stark contrast between the importance given to custom and the practical relevance it actually assumes.
Case law and doctrine play a secondary role (although an important one), even where principles are concerned, as sources of law in the Portuguese legal system. They are used exclusively as a means of disclosing (or identifying or clarifying) pre-existing legal standards or solutions, generally from a legal source. Case law precedents are not binding and the very same issue could receive different treatment from one court to the next.
The main Portuguese insurance and reinsurance statutes and regulations are:
- a the Insurance Contract Law, enacted by Decree-Law No. 72/2008, of 16 April (ICL);
- b Law No. 147/2015;
- c the Commercial Code (in respect of marine insurance);
- d the Civil Code;
- e the regulations issued by the ASF;
- f the regulations issued by the Portuguese Securities Market Commission in respect of unit linked life insurance contracts and operations;
- g the special legislation dealing with compulsory insurance; and
- h the special legislation dealing with consumer protection (including the Portuguese Unfair Contract Terms Act).
ii Making the contract
Without prejudice to the main principles on contract law that may be found in the Civil Code, the ICL establishes the specific process and requirements for the making of an insurance contract.
As a general rule, this process starts with the delivery by the prospective policyholder of a duly completed application form prepared by the insurer, which will evaluate the risk and quote the premium. Prior to the conclusion of the insurance contract, the policyholder and the insured person, when different persons, must declare exactly all circumstances within their knowledge that they reasonably consider material to the risk assessment conducted by the insurer, even if reference to all these circumstances is not expressly requested by the insurer in whatever questionnaire or form the insurer may provide for those purposes, subject to the legally prescribed sanctions for a wilful or negligent non-disclosure or wrongful disclosure.
Insurers are also required to enquire about the insured party's insurance needs, and to advise on those needs and on adequate insurance solutions, and they must document the contents of this advice and its reasons.
Within 14 days following receipt of the application form, duly filed and signed, where the policyholder is a natural person, the insurer must notify the policyholder of the execution and entry into force of the insurance contract (usually by issuing a policy schedule); or of the documentation required and information deemed necessary to conclude the insurance contract; or of the refusal to conclude the insurance contract. If the insurer does not respond within the aforementioned 14-day period, the insurance contract should then be deemed to have been tacitly entered into, as is.
The rules established in the previous paragraphs are not applicable if the insurer is able to prove that it does not enter into, under any circumstances, insurance agreements with features similar to those that may be found in the application form.
In any case, risk coverage under any insurance contract depends upon the previous payment of the premium.
The policyholder may be entitled to a certain cooling-off period in some types of insurance contracts (e.g., 30 days counting from the date of receipt of the insurance policy in the case of a life insurance contract with a term greater than six months).
The validity of an insurance contract is not dependent on any specific form. However, the insurer must put the insurance contract into written form (the insurance policy) and deliver the written document, duly dated and signed by the insurer, to the policyholder. The same applies to any amendments or endorsements to the insurance contract.
iii Interpreting the contract
The contents of a contract should be construed objectively; that is to say, a statement shall be construed to have the meaning that would be attributed to it by a reasonable person in the position of the addressee, except if the person making that statement could not have reasonably anticipated such a meaning. In the latter case, it can be concluded that in fact no agreement has been reached. Or if it can be established that the addressee was aware that the person making that statement intended it to have a particular meaning, that meaning shall prevail.
Where the meaning of a statement gives rise to doubt, the meaning that should prevail is that which entails the greatest balance between the parties' undertakings, in the case of onerous contracts (as an insurance contract).
Contract terms shall be interpreted within the context of the whole contract. Where doubt arises as to the precise meaning of a specific contractual term not individually negotiated, the meaning that should take preference is that which is more favourable to the party who has not supplied it. In any case, terms that are the result of individual negotiation prevail over those that are not.
Silence may only be interpreted to amount to an indirect demonstration of intention, and hence as a contractual statement, in those cases where that value is attributed thereto by a statutory or contractual provision or by any applicable usages.
As a general rule, the terms and conditions of an insurance contract are subject to and must comply with the Portuguese law requirements on unfair contract terms.
As such, a contract term that has not been subject to individual negotiation is deemed to be excluded from a contract whenever:
- a it is not adequately communicated to the adhering party before the contract is concluded;
- b it is not sufficiently explained to the adhering party;
- c because of its graphic layout, its heading or the context in which it appears, it would not have been apparent to the average contracting party; or
- d it is inserted in a form after the signature of any of the contracting parties.
A number of provisions of the ICL are compulsory, unless large risks are concerned in certain specific situations. Other provisions are usually compulsory, in the sense that they cannot be derogated to the detriment of the policyholder, insured or beneficiary unless large risks are concerned.
The terms and conditions of the insurance contract must be written in a clear and precise way, and signed by the insured (there are special rules for electronic contracts). Further, clauses that establish the invalidity, extension, suspension or termination of the insurance contract; establish the scope of the covers (notably exclusions or limitations); or impose on the policyholder or beneficiary any duties subject to a deadline, must be highlighted and written in bold letters.
Otherwise, the policyholder shall be entitled to request the correction of the insurance policy or terminate the agreement within 30 days counting from the receipt of the insurance policy (unless this breach by the insurer has not reasonably affected the policyholder's decision to enter into the insurance contract or any third party has filed a claim).
Risk coverage under any insurance contract depends upon the previous payment of the premium.
iv Intermediaries and the role of the broker
‘Insurance intermediary' is defined under Portuguese law as any natural or legal person who, for remuneration, takes up or pursues an insurance intermediation activity.
Insurance intermediation is a regulated activity that comprises any activity of introducing, proposing or carrying out other work considered preparatory to the conclusion of insurance contracts, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim.
In addition to insurance brokers (see Section II.ii, supra), the other insurance intermediary categories established by DL 144/2006 are as follows:
- a tied insurance intermediary - where the person carries out the activity of insurance mediation:
- for and on behalf of one insurance undertaking or, with authorisation from that insurance undertaking, for and on behalf of various insurance undertakings, as long as the person is tied only to one insurance undertaking in the class or classes that it is authorised to act in, but does not collect premiums or amounts intended for the customer and who acts under the full responsibility of those insurance undertakings for the products that concern them respectively;
- in addition to his or her principal professional activity, if the insurance is complementary to the goods or services supplied in the framework of this principal professional activity and the person does not collect premiums or amounts intended for the customer, acting under the responsibility of one or several insurance undertakings for the products that concern them respectively; and
- b insurance agent - where the person carries out the insurance mediation activity for and on behalf of one or more insurance undertakings, according to the terms of the contracts entered into with said undertakings.
Tied insurance intermediaries and insurance agents must enter into a written insurance intermediation agreement (which must comply with certain legal requirements) with each insurance undertaking with which they operate.
Contrary to tied insurance intermediaries and insurance agents, insurance brokers act for the policyholder and must provide the latter with an objective and independent analysis. In practice, brokers operate in Portugal as dealmakers and typically coordinate the parties involved in an insurance contract.
Any claim must be notified to the insurer as soon as possible. As a general rule, insurance claims must be reported within eight days (or a greater period agreed in the insurance contract) counting from the date the policyholder, the insured or the beneficiary became aware of the claim, unless the insurer became aware of the claim by other means.
The policyholder, insured or beneficiary is required by law to provide all information available on the circumstances and consequences of the claim.
An insurance contract may establish that in the event of failure to make a timely report of a claim a lower amount shall be paid by the insurer. In cases of wilful behaviour that causes significant damage to the insurer, the insurance contract may establish that the insurer shall be under no obligation to settle the claim. This rule is not applicable in cases of compulsory civil liability insurance, although in such cases the insurer is entitled to a right of recourse against the defaulting party.
The insurer must pay the claim, if accepted by the insurer, within 30 days. An unjustified rejection of claims or a delayed decision on coverage has no particular consequences. The insured may then simply sue the insurer.
The insurer may set off any open premium claims under an insurance contract from any claims payable under the contract.
IV DISPUTE RESOLUTION
i Jurisdiction, choice of law and arbitration clauses
The competent court for any dispute arising out of or in connection with an insurance contract shall be the court of the defendant's domicile. Alternatively, for any dispute filed by the policyholder, the insured or the beneficiary against the insurer, the competent court shall be that of the plaintiff's address.
The choice of law rules applicable to insurance contracts are laid down in Article 7 of Regulation (EC) No. 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I Regulation).
The parties to an insurance contract may take advantage of a greater freedom afforded to them by the ICL, for the purposes of Article 7(3) of the Rome I Regulation and choose any governing law provided that they have a serious interest in that law or that law has a connection with any relevant element of the insurance contract, as defined in private international law.
The ICL expressly acknowledges the freedom of the parties to an insurance contract to submit to arbitration any disputes arising from the contract. However, contrary to reinsurance contracts, arbitration clauses are not commonly used in insurance contracts.
Although alternative dispute resolution (ADR), especially mediation, is starting to develop in Portugal (in particular, tax arbitration), it is rarely used in insurance matters.
Insurance-related disputes are subject to general civil procedure, which, in Portugal, may be characterised as an adversarial procedure with a preference for oral expression, and with certain fundamental principles, such as the right of access to justice, the right to reasonable duration of proceedings and the right to a fair trial (principle of equity).
Both civil and criminal proceedings include different stages. Generally, proceedings are initiated by the parties submitting pleadings, followed by a stage in which evidence is provided. Subsequently, the trial takes place and the court issues its decision. Finally, the parties can appeal the judgment, provided that certain conditions are met.
Despite the above, the new Civil Procedure Code establishes that all witnesses must be offered with the submission of the pleadings.
There are two kinds of civil proceedings: declarative and enforcement. Through the former, the court's decision has res judicata effect and the court decides on the merit of the litigation between the parties. Enforcement proceedings may serve three purposes: the payment of an amount; the delivery of a certain object; or forcing the counterparty to carry out a certain action.
Ordinary declaratory proceedings in Portugal may take from one to three years until a final court decision is issued, while enforcement proceedings may take from one to two years.
Subject to the exceptions provided for in the law, each party bears the burden of proving those facts supporting his or her claim in the proceedings.
The courts have wide discretion when assessing evidence, subject to reasoning founded on the applicable law and the relevant facts.
Court costs are to be advanced by both parties. The winning party may claim from the losing party the judicial fees that were paid during the proceedings. The winning party may have to pay additional amounts at the end of the proceedings and claim the corresponding reimbursement from the losing party.
Arbitration continues to flourish in Portugal. Parties have progressively added arbitral agreements to contracts and there is a general sense that Portugal may become a privileged forum for arbitrations between companies based in Portuguese-speaking countries such as Brazil, Angola and Mozambique. On 15 March 2012, a new Law on Arbitration entered into force, replacing the former Arbitration Act.
The new Law is rather innovative, drawing inspiration from the 2006 version of the UNCITRAL Model Law, introducing provisions intended to grant more flexibility with regard to the formal validity of an arbitration agreement, making it simpler to comply with the written form requirement.
Five years after its entry into force, it is reasonable to state that the Law has increased flexibility in Portuguese arbitration and facilitated the increasing number of arbitral agreements included in contracts.
The leading arbitral centre is the Arbitration Centre of the Portuguese Commercial Association. As regards foreign arbitration, Portugal is party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
iv Alternative dispute resolution
The greatest criticism of the Portuguese legal system is the length of time proceedings take. Furthermore, during the past decade, the annual number of actions filed before court has increased dramatically. In light of the above, both the civil society and the government have been encouraging the promotion of ADR; namely arbitration, mediation, conciliation and resolution by justices of the peace. In 2001, the government created the Cabinet for Alternative Dispute Resolution, a department of the Ministry of Justice exclusively dedicated to ADR.
Besides arbitration, mediation and conciliation, the most popular form of ADR is conducted by a justice of the peace, who is governed by Law No. 78/2001 of 13 July 2001 (as recently amended by Law No. 54/2013 of 31 July, which widened the scope and jurisdiction of justices of the peace), and numerous centres have been created under the supervision of a special commission. Justices of the peace are only available to settle disputes among individuals and have jurisdiction on civil matters purporting to small claims (up to €15,000). Under the legal framework on justices of the peace, legal persons may now resort to mediation (excluding for class actions) and preliminary injunctions are now available.
In Portugal, the Information, Mediation, Ombudsman and Arbitration Insurance Centre functions as a private non-profit association with the purpose of making available ADR mechanisms. To this effect, this Centre created two independent and autonomous procedures: an insurance mediation and arbitration service; and an insurance customer's ombudsman service.
At present, the Centre promotes the settlement of disputes arising from insurance agreements of the following classes:
- a motor;
- b civil liability (family, exploration, hunting, use and possession of firearms) relating to complaints of up to €50,000; and
- c multi-risk home insurance (commercial and housing) relating to complaints of up to €50,000.
Additional insurance classes are expected to be included in this ADR in the future.
Law No. 29/2013, of 19 April, establishes the general principles on mediation in Portugal. The law filled a legal gap by introducing important provisions pursuant to which any dispute regarding property issues or any rights that may be the object of transactions by the parties may be submitted to mediation.
Another important provision establishes that private mediation settlement agreements are, under the following specific circumstances, enforceable directly, without the need to obtain homologation from a court or the obligation to execute extrajudicial settlements in mediation centres supervised by the Ministry of Justice:
- a the settlement's object must be capable of being mediated and not subject to a mandatory court decision;
- b parties must have capacity to execute the settlement;
- c the settlement must have been reached through mediation and according to law;
- d the content of the settlement must not violate the public policy of the Portuguese state; and
- e the settlement must be reached with the intervention of a mediator included on the Ministry of Justice's public list of mediators.
This statute also includes provisions on the training, duties, rights and legal impediments of mediators, as well as the rules applicable to public mediation frameworks.
However, mediation and conciliation settlement agreements in Portugal are traditionally negotiated between the parties' attorneys, in the majority of the cases, during pending lawsuits. Parties are usually very reluctant to use mediation and conciliation.
V YEAR IN REVIEW
The legal framework implementing Solvency II was enacted in 2015, with effect from 1 January 2016, introducing significant changes to the rules governing the taking up and pursuit of insurance and reinsurance activities in Portugal. The new framework has also had an impact on the day-to-day business of Portuguese insurance undertakings.
In terms of transactions and changes of ownership of insurers, the market continued to evolve in 2016, as the change of ownership over Açoreana, to the same foreign private equity firm that previously acquired Companhia de Seguros Tranquilidade, SA, at the beginning of 2015, was completed in 2016. Real Vida Seguros became the sole insurer with a presence on the Portuguese stock market when its parent company, Patris Investimentos, debuted at Alternext marketplace. Real Vida Seguros ended 2016 with the acquisition of Finibanco Vida, a specialised life insurer formerly owned by the Mutualist Group Montepio.
Regarding legislative and regulatory initiatives, the following topics affecting the insurance and reinsurance market have been addressed in the past year:
- a ASF Regulation No. 8/2016-R of 16 August, establishing the new framework for the reporting duties of insurance to the ASF;
- b ASF Regulation No. 10/2016-R of 15 September, providing the new chart of accounts for insurance companies; and
- c Ordinance No. 74-B/2016 of 24 March 2016, setting forth the contributions to the ASF owed by insurance companies.
Regulatory initiatives regarding other matters have also been carried out, notably in relation to the reporting duties concerning changes in the insurance companies' shareholding structure and the role of the external auditor and of the responsible actuary in the reporting to the ASF.
VI OUTLOOK AND CONCLUSIONS
Despite unfavourable conditions resulting from financial distress and the challenges to economic recovery that have followed years of crisis, the insurance and reinsurance markets in Portugal have achieved satisfactory results; in particular, the sustained levels of foreign investment interest demonstrate a generally positive outlook for the Portuguese insurance market from the standpoint of private investors.
Direct insurance contracts decreased in 2015 by 6.6 per cent compared with 2014, while claims costs increased by 9.3 per cent (strongly influenced by life insurance) and insurers, investment portfolios decreased by 2.6 per cent. By contrast, at the end of 2015, the coverage rate of the solvency margin was at 238 per cent, which represents an increase of 32 per cent. From 2014 to 2015, the Portuguese insurance sector became more capitalised, with a global net result of €378 million.
From a legislative perspective, the Solvency II Directive has been in force since 1 January 2016. Its implementation has mostly been achieved, but it has not been without its challenges.
In addition to Solvency II, other relevant EU legal provisions will either be transposed or their implementation prepared in the coming months, notably Directive (EU) 2016/97 on insurance distribution, which, among other things, aims to ensure consumers benefit from the same level of protection regardless of differences between distribution channels. At a local level, 2017 will also see a new regulation being enacted on the ASF registration procedures of of the persons who effectively manage or supervise: insurance undertakings; people who hold key functions; and responsible actuaries.
In conclusion, the insurance and reinsurance sectors face challenging times in light of the new regulatory requirements imposed. The ASF will have to closely monitor the relevant aspects of this new regime, as well as its implementation.
In view of the above, the coming year will most certainly be a proving ground for Portuguese insurance and reinsurance undertakings as they continue to adapt to the requirements and impact of Solvency II on their day-to-day business.
This notwithstanding, the Portuguese insurance sector will continue to benefit from new market entrants and the forecast economic growth.