Insurance and reinsurance

Captive insurance

Summarise any captive insurance regime in your jurisdiction as applicable to aviation.

The Portuguese insurance legal regime applicable to aviation is currently set forth in Decree-Law No. 321/89 of 25 September 1989, as amended by Decree-Law No. 208/2004 of 19 August 2004; and in Regulation (EC) No. 785/2004 of the European Parliament and of the Council of 21 April 2004, as amended by Regulation (EC) No. 1137/2008 of the European Parliament and of the Council of 22 October 2008; and by Commission Regulation (EU) No. 285/2010 of 6 April 2010 on insurance requirements for air carriers and aircraft operators. The purpose of these pieces of legislation is to set forth minimum insurance requirements for air carriers and aircraft in respect of passengers, baggage, cargo and third parties, for both commercial and private flights.

Additionally, Decree-Law No. 223/2005 of 27 December 2005 sets forth the insurance requirements applicable regarding non-commercial operations by aircraft with a maximum take-off mass (MTOM) of 2,700kg or less.

Insurance and reinsurance activities are regulated and therefore the exercise of said activities by, and the incorporation of, insurance or reinsurance companies in Portugal is subject to specific requirements set forth in the Portuguese Legal Regime applicable to Insurance and Reinsurance Activities (PLRIRA), approved by Law No. 147/2015 of 9 September 2015, which has enacted into Portuguese law Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (as amended).

Although there is no specific requirement under Portuguese law regarding a captive insurance regime specifically applicable to aviation, the PLRIRA expressly allows the incorporation of captive reinsurance companies.

In Portugal, aviation insurance and reinsurance agreements may be entered into with any insurance or reinsurance company incorporated in Portugal or authorised to exercise its activity in Portugal.

Provided the above-mentioned requirements are met, no specific provision applies requiring the insurance or reinsurance agreement to be placed in the jurisdiction.

Furthermore, regarding reinsurance agreements, there is no minimum or maximum percentage of the insurance that must be retained in the Portuguese jurisdiction. In fact, the PLRIRA authorises reinsurance agreements to be placed with reinsurance companies whose head offices are located outside the EU territory, and that are not established in Portugal, provided these are duly authorised to carry out the reinsurance activity in the relevant country. However, whenever said reinsurance company’s head offices are located within the territory of a country that has not entered into an agreement with the European Union on supervision requirements, said reinsurance company will be required to grant additional guaranties as set forth by regulations issued by the Portuguese Supervisory Authority.

Finally, note that there are no legal requirements determining the placement of the reinsurance with more than one reinsurance company.

Cut-through clauses

Are cut-through clauses under the insurance and reinsurance documentation legally effective?

Although cut-through clauses are more commonly used in reinsurance agreements entered into with captive reinsurers, they may also be included in reinsurance agreements entered into with reinsurance companies.

Pursuant to the Portuguese Insurance Law (approved by Decree-Law No. 72/2008 of 16 April 2008), unless otherwise set forth by law or in the reinsurance agreement, the reinsurance agreement does not grant to the policy holder any rights or obligations with regard to the reinsurer, or vice versa.

Notwithstanding the above, the same provision establishes that the above-mentioned general rule does not jeopardise the validity and enforceability of the clauses pursuant to which the insurer grants to the policyholder the ownership or the exercise of rights initially granted to the insurer pursuant to the reinsurance agreement, provided said clauses are admissible in accordance with the general law.

Considering that, pursuant to Portuguese law, at least part of the credits towards the reinsurers are included among the assets representing the technical provisions, and that said assets are deemed as a privileged patrimony specially aimed at guaranteeing the credits emerging from the insurance agreements, and that in case of insolvency of the insurer the policyholders are granted by law a privileged credit over said patrimony, in the scenario of the insolvency of the insurer, the validity and enforceability of cut-through clauses may be challenged on the basis that they constitute an unauthorised preference in liquidation.


Are assignments of reinsurance (by domestic or captive insurers) legally effective? Are assignments of reinsurance typically provided on aviation leasing and finance transactions?

As a general rule, Portuguese law authorises not only the assignment of rights but also the assignment of the contractual position entitling one of the counterparties to transfer to a third party not only the rights but also the obligations emerging from a given agreement.

While in the first case the validity and enforceability of the assignment is not subject to the authorisation of the counterparty (in this case the only exceptions to the general rule of free assignability: the agreement itself prohibits assignment; the assignment is prohibited by law; or the agreements calls for the performance of ‘personal services’), the assignment of rights and obligations is subject to the prior authorisation of the counterparty. Should that authorisation be granted before the execution of the assignment, it will only become perfected upon its notification to the counterparty.

Notwithstanding the above, assignments of reinsurance are not common regarding aviation leasing and finance transactions. Generally, said assignment may only occur in run-off situations.


Can an owner, lessor or financier be liable for the operation of the aircraft or the activities of the operator?

For the purposes of determining potential liabilities, Portuguese law classifies three categories of entities:

  • the owner (ie, the registered owner of the aircraft);
  • the user (ie, the entity using the aircraft); and
  • the air transporter (ie, the entity authorised to provide air services by transporting persons, luggage, cargo or mail in such aircraft).

The owner will only be liable if it is also the user of the aircraft.

If the use of the aircraft has been ceded to another party (eg, operator or lessee), the user will be liable for the operation of the aircraft and related activities of the operator, and no liability shall accrue to the owner or lessor.

The financier shall not be liable for the operation of the aircraft or the activities of the operator.

Strict liability

Does the jurisdiction adopt a regime of strict liability for owners, lessors, financiers or others with no operational interest in the aircraft?

In compliance with Regulation (EC) No. 785/2004 (as amended by Regulation (EC) No. 1137/2008, and by Commission Regulation (EU) No. 285/2010) on insurance requirements for air carriers and aircraft operators, Decree-Law No. 321/89 sets forth that air carriers and aircraft operators shall be insured in accordance with the said law as regards their aviation-specific liability in respect of passengers, baggage, cargo and third parties. The insured risks shall include acts of war, terrorism, hijacking, sabotage, unlawful seizure of aircraft and civil commotion.

Furthermore, it sets forth that air carriers and aircraft operators shall ensure that insurance cover exists for each and every flight, regardless of whether the aircraft operated is at their disposal through ownership or any form of lease agreement or through joint or franchise operations, code-sharing or any other agreement of the same nature.

Third-party liability insurance

Are there minimum requirements for the amount of third-party liability cover that must be in place?

The minimum requirements applicable by Portuguese law are the ones set forth in Regulation (EC) No. 785/2004 (as amended by Regulation (EC) No. 1137/2008, and by Commission Regulation (EU) No. 285/2010) on insurance requirements for air carriers and aircraft operators (see table).


MTOM (kg)

Minimum insurance (million special drawing rights)































* The author would like to acknowledge, with thanks, the assistance of the following colleagues: Conceição Balcão Reis (M&A and aviation); Afonso Moucho Diogo (litigation); Diogo Ortigão Ramos and Mário Silva Costa (tax) and Ana Sofia Silva (insurance).