18 POLICY Special edition 2023 The LIBOR Reform - End of LIBOR Interest as of 30th June 2023 By Peggy Sharon, Adv. Levitan, Sharon & Co. The award of interest by the Court on a monetary obligation is not a punishment tool but rather a compensation for the loss of the ability to use the money. How will this award be calculated in insurance claims? The payment of insurance benefits in Insurance claims in Israel bears interest from the lapse of 30 days from the date of submitting the claim to the Insurer.1 The interest rate for policies which are denominated ILS is in the rate set according to the Law of Adjudication of Interest and Index Differentials,1961. However, insurance benefits under policies denominated in foreign currencies bear another kind of interest. During the years, the interest which governed the payment of dollar policies has been the LIBOR (London Inter-Bank Offered Rate) which has been set by a panel of 11-16 World Banks for loans on which financial entities and other bodies have relied upon as a rate which reflects the reality and the genuine assessment of banks concerning the interest rate in which they can borrow money from other banks. The Israeli Courts have awarded LIBOR interest on foreign currenciy policies, according to new regulations (from 2003) of the Law of Adjudication of Interest and Index Differentials,1961 which provided its application explicitly see e.g., C.A.78/04 Hamagen Insurance Company v. Shalom Gershon Hauliers (para. 74) – LIBOR + 1% on insurance benefits; C.C. 270/00 (Haifa Distr. Ct.) Discout Leasing Ltd and Sky Club Ltd v. Peltours Insurance agencies, Aryeh Insurance Co and Others (2006) -LIBOR+1% on insurance claim; C.A. 6388/98 Deniztas Nakliyat Ve Ticaret A.S. v. Credit Lyonnais S.A. and Others (2.7.2003) (Contractual Breach Claim). In June 2012, a scandal shook the financial markets, when it was revealed that various banks were involved in price co-ordinations and manipulations on the LIBOR interest by reporting high or low interest rates thus making false representations which enabled market traders to gain enormous profits. This led to criminal indictments, payment of fines of billions of Dollars to the authorities in Europe, USA and UK and resulted in transferring the control over the LIBOR to the ICE Benchmark Administration and to taking steps in order to abolish this interest rate from being an anchor basis. The reform will be completed at the end of June 2023, when the LIBOR will be totally abandoned concerning the US Dollar, after its cancellation as regards other currencies already in 2021. What will be the interest applicable to policies in foreign currencies after the LIBOR era? SOFR (Secured Overnight Financing Rate) is the US replacement rate published by the Federal Reserve Bank of New York instead of the LIBOR and many experts consider it as a more accurate and more secure pricing benchmark. It can be seen as the average interest rate for secured loans issued in American Dollars (USD) with a maturity of 1 day (overnight). The Bank of Israel in its review of the Israeli bank system in 2021, related to the global reform which abandoned the use of the LIBOR interest. A team of the Bank analyzed the matter and set the principles for the alternative interest in co-ordination with the Global Regulators abroad. The Bank emphasized that the leading governments and the international entities should ascertain that the transition from the LIBOR to the new alternative interest, will be carried out without causing shock to the financial markets. Experts think that the new rate which is defined as a “risk free rate”, will bring a change in the amounts as compared to the past, in view of the required adjustments to the element of credit risks. We will follow the new regulations which will be published regarding the alternative rates and the alternative international committees/platforms which will publish the rates relevant to each of the various currencies. 1) In addition to index differentials from the date of the Insured Event (Article 28 of the Insurance Contract Law 1981)
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