CMI adjusts General Average
At the CMI conference in Antwerp in September 2022, Comite Maritime International approved changes to the rules and practice of General Average.
The interest rate for General Average contributions was changed from LIBOR +4% to USD Prime Rate +2%. The reason for this was that the LIBOR rate will be discontinued, and the USD Prime Rate has been chosen as the new reference rate. The uplift is reduced from 4% to 2% because the USD Prime Rate has traditionally been approx. 2% higher than LIBOR.
CMI also approved an amended guide to General Average. The first guide of CMI was prepared in 2016. The guide is not a binding document.
The most significant change to the guide is that CMI have prepared standard forms for Average Bonds and Average Guarantees. These are approved by the International Chamber of Shipping and IUMI.
So far the Bonds and Guarantees used have been forms developed by individual average adjusters.
IUNO’s opinion
The change of reference interest rate is a natural consequence of LOBOR being discontinued. However, where LIBOR was based on several currencies, the USD Prime Rate is based on one currency only. This could lead to more variations in the interest rate. The new documents do not turn the security process upside down by any means, but they are the result of a process where both shipowner and insurer representatives, including cargo insurers, have been heard. They may therefore be argued to have a status akin to agreed documents and as such may well dispose of any unclear issues in the documents used until now.
IUNO therefore recommends that the new CMI Average Bond and Average Guarantee forms are used in the future.
The interest rate for General Average contributions was changed from LIBOR +4% to USD Prime Rate +2%. The reason for this was that the LIBOR rate will be discontinued, and the USD Prime Rate has been chosen as the new reference rate. The uplift is reduced from 4% to 2% because the USD Prime Rate has traditionally been approx. 2% higher than LIBOR.
CMI also approved an amended guide to General Average. The first guide of CMI was prepared in 2016. The guide is not a binding document.
The most significant change to the guide is that CMI have prepared standard forms for Average Bonds and Average Guarantees. These are approved by the International Chamber of Shipping and IUMI.
So far the Bonds and Guarantees used have been forms developed by individual average adjusters.
IUNO’s opinion
The change of reference interest rate is a natural consequence of LOBOR being discontinued. However, where LIBOR was based on several currencies, the USD Prime Rate is based on one currency only. This could lead to more variations in the interest rate. The new documents do not turn the security process upside down by any means, but they are the result of a process where both shipowner and insurer representatives, including cargo insurers, have been heard. They may therefore be argued to have a status akin to agreed documents and as such may well dispose of any unclear issues in the documents used until now.
IUNO therefore recommends that the new CMI Average Bond and Average Guarantee forms are used in the future.
