Growing Skepticism Ignores Climate Change Facts; Max Merges with Harbor Point; Terrorist Pirates Threaten the Malacca Strait

The Climate Change debate rolls on, but real decisions and effective actions remain elusive. Hardly a week goes by without a new report or study on the changes affecting the atmosphere, but the general public appears to be contracting “climate overload.”

As reported by Reuters, the vast amounts of water stored in glaciers play a crucial role in river flows, hydropower generation and agricultural production. But many are melting rapidly, with the pace picking up over the past decade. They play a central role in the debate over causes and impacts of climate change.

Switzerland’s Aletsch glacier, the largest in the Alps, has been retreating for about 150 years. But the glacier, which feeds the River Rhone, still stores an estimated 27 billion tons of ice. That’s about 12 million Olympic-sized swimming pools. There are thousands of glaciers throughout the world – enough to raise sea levels by over two feet, if they all melted.

Are people concerned? Apparently not. Most of the commentary on glaciers focused on the error in the IPCC report that those in the Himalayas would melt by 2035 – about 300 years earlier than the actual calculations.

The UK’s Met Office published a review of the scientific studies, which concluded that “the climate system is changing in a number of ways which follow the pattern of climate change predicted by computer models. The only plausible explanation is that changes are happening as a result of human activity, including man-made greenhouse gas emissions.”

The European Union plowed ahead on plans to close “loopholes” in its carbon emission reduction programs. Part of a draft EU report concluded: “Optimistic assessments … indicate that a pathway towards limiting the global temperature increase to no more than 2 degrees Celsius [3.6°F] is still feasible, but more pessimistic assessments indicate this chance is disappearing fast.”

The reaction to that, other than “so what,” was general disbelief that any program the EU proposes either won’t actually happen, or, if it does, it won’t have any real effect.

Finally Gallup released a poll, as reported by Reuters, which found that a growing number of Americans, nearly half the country, think global warming worries are exaggerated and more people doubt that scientific warnings of severe environmental fallout will ever occur.

The skepticism, coupled with indifference leaves the insurance industry in a very uncomfortable position. Most of the companies that have undertaken to study the effects of climate change, led by Munich Re and Swiss Re, who have been worried about it for nearly 20 years, have concluded that it’s a real threat. They expect more droughts, storms and rising sea levels, which will cause more and bigger wildfires, floods and wind damage, and inevitably bigger losses.

However, the industry now faces the task of convincing politicians to spend more money and to impose new and largely unpopular regulations and building codes to combat a problem that many of their constituents don’t believe exists. In addition they’re trying to do this in the middle of the worst global recession since the 1930s.

Max Capital Group Ltd. and Harbor Point Limited, both headquartered in Bermuda announced that they have agreed to merge. The news was generally given a thumbs up by the rating agencies and financial commentators as a “merger of equals” that would benefit both companies.

While Max Capital is a publicly traded company (on NASDAQ), Harbor Point is privately held. It was established by Chubb Corp. and the investment firm Stone Point Capital LLC in 2005. Chub subsequently transferred its Chubb Re subsidiary’s book of business to Harbor Point.

The combined company will be renamed and rebranded as Alterra Capital Holdings Ltd. After the consummation of the merger its shares will be traded on the NASDAQ Global Select market under the symbol ALTE.

Following the merger, Harbor Point shareholders will own approximately 52 percent of the combined company on a fully diluted basis, with Max shareholders owning approximately 48 percent.

When the merger is completed, W. Marston (Marty) Becker, chairman and CEO of Max will be president and CEO of Alterra and will serve as a director. John R. Berger, director, CEO and president of Harbor Point will become the CEO of Reinsurance of Alterra and vice chairman of the board of directors, and chair the board’s Underwriting Committee.

Piracy in the Strait of Malacca, once thought to be under control, may once again become a problem for maritime transport, this time from terrorists. Malaysia and Indonesia are stepping up security in one of the world’s busiest shipping lanes, following the Singapore navy’s warning of possible attacks on oil tankers.

As reported by Reuters, Malaysia’s coast guard is increasing security measures in the narrow waterway that tankers use to carry oil from the Middle East to Japan and China, and Indonesia is intensifying patrols there.

The 900-km long (550 miles) Malacca Strait links Asia with the Middle East and Europe, carrying about 40 percent of the world’s trade. More than 50,000 merchant ships ply the waterway every year.

Such an attack could have magnified consequences. An analysis from Reuters points out that while specialization in global supply chains has brought significant efficiency gains, it has also brought vulnerability. Disruption to a key node in the supply chain can cause dramatic and unpredictable turbulence in the whole system.

“A major terrorist attack that closed a port … for weeks would have severe economic consequences on world trade because it would inflict major disruptions in complex just-in-time supply chains that comprise the global economy,” the World Economic Forum said in its Global Risks 2010 report, in January.

“Maritime attacks offer terrorists an alternate means of causing mass economic destabilization,” terrorism risk analyst Peter Chalk said in a RAND report. “Disrupting the mechanics of the global ‘just enough, just in time’ cargo freight trading system could potentially trigger vast and cascading fiscal effects, especially if the operations of a major commercial port were curtailed.”