Max Re Capital Ltd. yesterday reported a 59 percent drop in net income in its second quarter as a plunge in alternative investment income offset an improved underwriting performance.

Max Re reported net income for the three months ended June 30 of $12.6 million, or net income of $0.26 per diluted share, compared to net income of $30.8 million, or net income of $0.81 per diluted share, for the same period in 2003.

Net operating income before minority interest, which represents net income before minority interest reduced/increased by net realised gains/(losses) on sale of fixed maturities, for the three months ended June 30, 2004 was $15.2 million, or net operating income of $0.32 per diluted share, compared with net operating income before minority interest of $36 million, or net operating income of $0.79 per diluted share, for the three months ended June 30, 2003.

?For the second quarter Max Re showed continued improvement in its combined ratio, strong premium growth in our traditional insurance business and modest premium growth overall,? said chairman and chief executive officer Robert J. Cooney. ?This allowed us to produce reasonable earnings, despite a difficult investment quarter where our alternative investment portfolio posted an unusually small return.?

Max Re said net gains on alternative investments for the second quarter were $1 million, or a 0.1 percent rate of return, compared to net gains on alternative investments of $45.2 million, or a 5.84 percent rate of return, for the same period of 2003. For the six months ended June 30, 2004, alternative investments returned 4.17 percent, compared to 9.12% for the same period in 2003. Invested assets were $2.9 billion as of June 30, 2004, with an allocation of approximately 65.5 percent to cash and fixed maturities and 34.5% to alternative investments.

Overall net investment income for the quarter increased to $19.7 million, from $15.1 million for the same period in 2003, as the company increased its holdings of cash and fixed maturities.

Net investment income for the six months ended June 30, 2003, increased $8.9 million, to $38.5 million, compared to $29.6 million for the same period in 2003.

The company did post an improved result for the first half of the year, with net income improving to $55.6 million, or net income of $1.13 per diluted share, compared to $45.4 million, or $1.19 per diluted share, for the six months ended June 30, 2003.

Gross premiums written for the three months ended June 30, 2004 were $183.7 million, compared to $165.8 million in the same period in 2003.

Net premiums earned for the three months ended June 30, 2004 increased 20 percent to $171.8 million compared to $143.3 million for the same period of 2003.

Net premiums earned for the first six months of 2004 increased 29% to $370.7 million compared to $287 million for the same period in 2003.