Law No. 12 of 2012 Regulating the Insurance Activity and Enacting Other Provisions

ASSEMBLY OF THE REPUBLIC OF PANAMA LEGISPAN LEGISLATION OF THE REPUBLIC OF PANAMA REGULATING THE INSURANCE ACTIVITY AND ENACTING OTHER PROVISIONS. Number: Year: Type of Norm: Reference: LAW 12 2012 Title: Issued by: NATIONAL ASSEMBLY Date (dd-mm-yyyy): 03-04-2012 Official Gazette: 27007-A Published on: 03-04-2012 COMMERCIAL LAW, ADMINISTRATIVE LAW Insurance, Insurance Liability, Accident Insurance, Life Insurance, Required Requirements, Technical Standards and Specifications, Superintendence of Insurance and Reinsurance of Panama Roll: Position: 593 2 Pages: 102 Size in Mb: 7.630 Branch of Law: Keywords: TEL.: 212-8496 - EMAIL: LEGISPAN@ASAMBLEA.GOB.PA WWW.ASAMBLEA.GOB.PA

O.G. 27007-A NATIONAL ASSEMBLY, REPUBLIC OF PANAMA LAW 12 Of April 3, 2012 Regulating the insurance activity and enacting other provisions THE NATIONAL ASSEMBLY DECREES: Title I Superintendence of Insurance and Reinsurance Chapter I Application, Scope and Definitions Article 1. Scope of application. The following are subject to the control, prior authorization, oversight, supervision, regulation, and monitoring of the Superintendence of Insurance and Reinsurance: companies or entities whose object is to carry out insurance operations, in any of their branches, and surety bonds, as well as insurance sales agents, insurance account executives, insurance sales agencies, independent insurance adjusters and loss adjusters, administrators of brokerage companies or insurance brokers, and natural or legal persons dedicated to the profession of insurance brokerage. The activities and operations provided for in this Law, insofar as they involve the provision of coverage on insurable interests and include the collection, investment, and administration of insureds' resources, are considered of public interest, corresponding exclusively to the State, through the Superintendence of Insurance and Reinsurance of Panama, the prior authorization, regulation, regulation, supervision, control, and oversight of the entities and persons carrying out such activities and operations, in safeguarding the public interest, the proper protection of insureds, and the adequate development of the insurance market in the country.

Article 2. Additional scope and exception. The provisions of this Law also apply to entities that seek to promote coverage or health plans, insurance modalities that involve the delivery of annuities, and life insurance modalities that include investment or savings funds for which policies or contracts are issued, except those that are or have been authorized by special laws and the Social Security Fund, which may insure itself against the risks of the regimes administered by the Institution, as well as the risks of death, fire, and allied lines, from its mortgage portfolio, having to reinsure said risks with companies dedicated to providing coverage of this type in accordance with current legal norms and the regulations approved by the Superintendence. Capitalization societies, pension or retirement funds, investment or savings funds, and trusts shall be governed by the legal provisions on these matters that are in force.

Article 3. Definitions. For the purposes of this Law, the following terms shall be understood as follows:

1. Supervised activities. Those that are subject to the control, prior authorization, oversight, supervision, regulation, and monitoring of the Superintendence of Insurance and Reinsurance, such as insurance operations, in any of their branches, and surety bonds, as well as insurance brokerage and sales services and surety bonds; insurance adjustment and loss inspection services; the administration of brokerage companies or insurance brokers, and any other activity that, in accordance with this Law, is considered a supervised activity.
2. Admitted assets. Those assets that can be easily and swiftly converted into cash predictably without substantial loss of value, are free of liens, and are listed in Article 217, and that are permitted to invest or back the reserves of insurers established in this Law and in the International Financial Reporting Standards or that are created in the future in accordance with this Law.
3. Insurance sales agency. A legal entity constituted and registered in accordance with the laws of the Republic of Panama, authorized by the Superintendence of Insurance and Reinsurance to act, in accordance with this Law, as a commercial intermediary between the policyholder and the insurer, in all matters related to the insurance contract, surety bonds, and other products provided for in this Law. This agency will represent and serve as a sales channel for a single insurer. This activity may only be exercised by Panamanians.
4. Insurance sales agent. A natural person authorized by the Superintendence of Insurance and Reinsurance to act, in accordance with this Law, as a commercial intermediary between the policyholder and the insurer, in all matters related to the insurance contract, surety bonds, and other products provided for in this Law. This agent will represent and serve as a sales channel for a single insurer. This activity may only be exercised by Panamanians.
5. Independent insurance adjuster and loss inspector. A natural or legal person constituted and registered in accordance with the laws of the Republic of Panama and authorized by the Superintendence of Insurance and Reinsurance to act as an independent contractor, at the request or requirement of any of the involved parties, examine, investigate, and determine the known or presumed causes of a loss and suggest the valuation of damages caused by it, attending to the terms and conditions of the insurance contract. Insurance companies, sales channels, insurance broker administrators, or insurance brokers may not carry out the activities of independent insurance adjuster nor be owners, partners, directors, or shareholders of a society of independent insurance adjusters. In the event that a natural person performs functions as an independent insurance adjuster, they may not perform functions nor be an owner, partner, director, or shareholder of an insurer, sales channel, insurance broker, or insurance broker administrator. The Board of Directors, by agreement of its members, shall establish the requirements and conditions required to act as an independent insurance adjuster.
6. Public insurance adjuster. A natural person duly authorized by the Superintendence of Insurance and Reinsurance and serving as an official in charge of appraising the economic consequences derived from a loss, who assists the Superintendence within the administrative processes in which it requires establishing the known or presumed causes of a loss and determining the amount of compensation due. The requirements to be a public insurance adjuster and other related aspects shall be developed by agreement of the Board of Directors of the Superintendence.
7. Insured. Natural or legal person upon whom the risk that has been ceded to an insurer through the celebration of an insurance contract falls.
8. Insurer or insurance company. A legal entity constituted or registered in accordance with the laws of the Republic of Panama and authorized by the Superintendence of Insurance and Reinsurance, whose object is insurance and/or surety bond operations. When the generic term insurer or insurance company is used in this Law, it shall be understood to include branches of insurers constituted outside the Panamanian jurisdiction, authorized by the Superintendence of Insurance and Reinsurance to operate in the Republic of Panama.
9. Alternative sales channels. General license banks, financial companies, and cooperatives, as well as companies in the commercial system, that have entered into a sales contract with an insurer to offer and promote the celebration of the insurance contract to third parties on its behalf, in accordance with the conditions stipulated in said sales contract.
10. Portfolio cession or transfer. Agreement by which an insurer (cedent) cedes to another (cessionary) all of its current insurance contracts (total cession) or only those referred to several branches, one of them, or part of them (partial cession), in accordance with what is provided by this Law.
11. Coercion. Act of force or moral, physical, or economic pressure carried out by a supervised person or a third party, with the knowledge of this, with the object of obtaining the placement of insurance policies or contracts or any other service related to the activity regulated by this Law.
12. Consumer of the insurance service. Policyholder, insured, beneficiary, and third party with a legitimate interest, except for the contracting of surety bonds.
13. Policyholder. Natural or legal person who acquires from an insurer, through the celebration of an insurance contract, coverage against risks on themselves or on other persons, or on objects or properties, own or of third parties, which are the object of the insurance contract.
14. Insurance broker. Natural person authorized by the Superintendence of Insurance and Reinsurance who, in accordance with this Law, mediates, on behalf of the policyholders, in the celebration of insurance contracts, surety bonds, and other products provided for in this Law, provides advice and service, and represents the interests of insureds or insurance policyholders in matters within their competence.
15. Authorized custodians. Entities duly authorized in their respective jurisdiction to keep in custody the money, securities, or goods of another person.
16. Insurance account or sales executive. Natural person registered with the Superintendence of Insurance and Reinsurance who is dedicated to the promotion or commercialization of insurance on behalf of an insurance broker, natural or legal person, without being able to provide such services to more than one of these persons, and who may, at the option of the contracting parties, be subject to working hours and attendance records, or exercise in the capacity of an independent contractor or any other modality permitted by the laws of the Republic of Panama.
17. Economic group. Set of legal persons, of any nationality or jurisdiction, whose interests are so related to each other that, in the judgment of the Superintendence, they must be considered as if they were a single person.
18. Confidential information. Any type of information in the hands of supervised persons that is relevant with respect to medical and psychological data, intimate life, including family matters, marital activities, or sexual orientation of the policyholder or insured, as well as information pertinent to minors in these same aspects.
19. Report. Any type of accounting, financial, economic information, technical notes on products, and operational and administrative statistical tables.
20. Guaranteed instrument. That in which the guarantor must respond, at least in a subsidiary manner, to the respective obligation in the same terms in which the principal obligor must do so.
21. Capital instruments. Common shares, preferred shares, and participation quotas issued by legal persons.
22. Credit instruments. Credit securities, negotiable commercial securities, bills, notes, bonds, and promissory notes issued by legal persons, as well as demand and time deposits and other titles representing collections issued by financial institutions.
23. Microinsurance. A financial mechanism whose purpose is to protect low-income people against specific risks, such as accidents, illnesses, family deaths, and natural disasters, in exchange for the regular payment of insurance premiums that adjust to their needs, income, and level of risk. Microinsurance is mainly directed at low-income workers, especially those in the informal sector, who are usually neglected by traditional insurance schemes.
24. International Financial Reporting Standards. Set of accounting standards that receive this name internationally and that, through this Law, are adopted by the insurance activity and declared mandatory for all supervised persons.
25. Coverage note. Written document in which the insurer or reinsurer manifests its commitment to cover a risk from the moment of its issuance or certain agreed date during a validity period not exceeding thirty calendar days. This document must contain at least the following information: a. The policyholder and the covered risk, within which the insured person or property must be identified. b. The signature of the insurer as a sign of acceptance of the covered risk. c. The date, deadline by which the insurance contract must be formalized, or the validity period of the coverage. d. The liability limit of the insurer.
26. Actuarial technical note. Document that supports an insurance product with technical bases, which details the characteristics, description of coverages, technical and financial hypotheses, statistics, procedures, and foundations of the risk premium, procedures and foundations of the tariff premium, procedures and foundations of the technical or mathematical reserve, and other relevant technical aspects. All parameters, symbols, and concepts must be completely defined.
27. Related party. When one of them has the capacity to control the other or to exercise significant influence over the other party in the taking of financial and operational decisions.
28. Adjusted net worth. Residual part of the insurer's assets, once all its liabilities have been deducted. It is composed of capital, equity reserves, and benefits pending distribution, adjusted for hard-to-recover assets, intangible elements such as premiums receivable with delinquency greater than ninety calendar days, goodwill, prepaid expenses, and any other element necessary to obtain the economic value of capital, according to criteria determined by the Superintendence for statistical information, control, and supervision purposes.
29. Supervised person. That natural or legal person that, through this Law, submits to the control, prior authorization, oversight, supervision, regulation, and monitoring of the Superintendence of Insurance and Reinsurance, carrying out supervised activities, such as insurance operations, in any of their branches, and surety bonds, as well as insurance brokerage and sales services and surety bonds; loss and claim adjustment services; the administration of brokerage companies or insurance brokers, insurance sales agents and agencies, and sales channels, and any other person who, in accordance with this Law, is considered as such for carrying out a supervised activity.
30. Healthcare Provider for the Elderly. Clinics or hospitals authorized by the Superintendence that have the necessary minimum infrastructure and that directly with their own resources are dedicated to providing services or health plans directed at preventing or restoring the health of elderly people.
31. Net premiums received after cancellations. Corresponds to the net written premium received in cash by the insurer, minus returns and cancellations.
32. Net retained premium. Total of premiums written or issued by direct insurance contracts contracted by an insurer, minus premiums ceded in reinsurance, plus premiums accepted in its capacity as a reinsurer, that is, assumed reinsurance, minus retrocessions.
33. Net retained premium receivable. Total of premiums written or issued by direct insurance contracts contracted by an insurer, plus premiums accepted in its capacity as a reinsurer, minus premiums ceded and retroceded in reinsurance, pending collection on a certain date.
34. Unearned premium. Portion of the premium paid by the policyholder that, in the event of cancellation or resolution of the insurance contract before the end of the agreed validity, must be returned to the policyholder.
35. Written or issued premium. Monetary amount that the insurer determines as the price to be paid in exchange for the protection and/or benefits granted in the terms of the insurance contract or policy during the validity period of said contract in the corresponding fiscal period, duly documented by invoice.
36. Net written or issued premium. Is the written or issued premium minus returns and cancellations.
37. Principle of public interest. Set of legal and judicial practices and strategies aimed at using the law as a defense mechanism for the interest of insured policyholders, beneficiaries, and third parties with a legitimate interest.
38. Risk. Possible occurrence by chance of an event that produces an economic need and whose real appearance or existence is prevented or guaranteed in the policy. Its appearance obliges the insurer to make the benefit, normally indemnification, that corresponds to it according to what was agreed.
39. Annuity or annuities insurance. Life insurance modality by which the insurer commits, upon maturity of the contract, to deliver to the policyholder, insured, or their beneficiaries a periodic, lifelong, or temporary annuity, in accordance with the corresponding contract.
40. Insurance. Commercial activity by which, through the insurance contract, also called policy, a party called the policyholder, by paying the premium, transfers risks on people or things to another party called the insurer, within the coverage limits and in accordance with the terms, limits, and conditions of the insurance contract or policy itself.
41. Insurance brokerage company. Legal entity constituted and registered in accordance with the laws of the Republic of Panama, authorized by the Superintendence of Insurance and Reinsurance to act, in accordance with this Law, as a mediator, on behalf of the policyholders, in the celebration of insurance contracts, surety bonds, and other products provided for in this Law.
42. Superintendence. Superintendence of Insurance and Reinsurance of Panama.

Article 4. Use of the word insurance. Except for state institutions dedicated exclusively to humanitarian or social security and assistance activities, no person who is not previously authorized by the Superintendence of Insurance and Reinsurance may use the word insurance or its derivatives, in any language, in its name, articles of association, trade name, description of objectives, letterheads, invoices, advertisements, or in any form that gives the impression that it is an insurer, an insurance product, an insurance broker, or any type of company that indicates or suggests that it is a supervised person or that exercises a supervised business or activity in any of its forms. It shall be the responsibility of the Superintendence to impose the respective sanctions on those who violate the provisions established in this article. Notaries public are prohibited from authorizing or issuing deeds or notarization of articles of association, minutes, or declarations of supervised persons, without the prior authorization of the Superintendence of Insurance and Reinsurance. This prohibition is extended to the director of the Public Registry of Panama in the registration of said documents. The authorization referred to in the previous paragraph must be recorded and signed by the Superintendent of Insurance and Reinsurance in the document to be notarized, registered, and/or authorized.

Article 5. Oversight of the exercise of a supervised activity. Whenever there is knowledge or well-founded reasons to believe that a natural or legal person is exercising any of the supervised activities, in contravention of what is provided in this Law, the Superintendence of Insurance and Reinsurance is empowered to examine their books, accounts, and documents in order to determine if they have infringed or are infringing any legal provision. Any refusal to present said books, accounts, and documents shall be considered as a presumption of the fact of exercising the supervised activity without authorization, in which case the Superintendence shall be empowered to order its intervention, notify the Public Registry to note the respective marginal annotation, and impose the sanctions provided for in this Law.

Chapter II Superintendence of Insurance and Reinsurance Article 6. Autonomy. The Superintendence of Insurance and Reinsurance of Panama, hereinafter the Superintendence, is recognized as an autonomous body of the State, with legal personality, own patrimony, and independence in the exercise of its functions, as the regulatory, regulatory, supervisory, control, and oversight authority of the companies, entities, and persons subject to the scope of application of this Law. The Superintendence, in order to guarantee its autonomy, will establish transparent regulatory measures with funds separate and independent from the Central Government and the right to administer them; it will approve its revenue and expense budget to be subsequently incorporated into the General State Budget; it will select, structure, and appoint its personnel, fix their remuneration in accordance with what is established by the Ministry of Economy and Finance, and have the power to dismiss them; it will enjoy the guarantees and immunities established in favor of the State and public entities, and will act with independence in the exercise of its functions and will be subject to the oversight of the Comptroller General of the Republic, as established by the Political Constitution of the Republic and this Law. Administrative actions in accordance with what is provided in Law 38 of 2000 adopted by the Superintendence shall have a suspensive effect.

Article 7. Objectives, structure, and coercive jurisdiction. The Superintendence has as its fundamental objective the protection of policyholders and the promotion of an inclusive insurance market, through the exercise of functions and activities that guarantee the solvency and liquidity of insurers and the exercise of the ac