NEW YORK (Bloomberg) — Max Capital Group Ltd., the Bermuda-based reinsurer with 20 percent of its investments in hedge funds and private equity, fell the most since going public in 2001 after saying the holdings declined in July and August.

The so-called alternative investments dropped by 6.3 percent in the two months ended August 31, the company said yesterday in a statement. The holdings declined by a total of about 5.1 percent in the first eight months of the year, the company said.

"We are disappointed by the portfolio's absolute return," chief executive officer Marty Becker said in the statement. Declines are "within acceptable bounds given the unprecedented volatility and credit deterioration that occurred in the financial markets.".

Companies including American International Group Inc., the insurer that's been taken over by the US government, and Allstate Corp. have reported lower returns from hedge funds and private equity this year as credit costs rise and equities slide.

Max Capital fell $2.88, or 11 percent, to $24.37 at 5 p.m. in Nasdaq Stock Market trading. The company has slipped about 13 percent this year.

The reinsurer said it holds fixed maturity securities issued by Lehman Brothers Inc. and AIG entities of $15 million and $13 million, respectively. The company also forecast that claims for hurricanes Gustav and Ike will range from $35 million to $50 million.

Bank of America Corp. analyst Rohan Pai lowered the recommendation for Max Capital to "neutral" from "buy" Sept. 11 on prospects investment returns may slump.

Becker puts a greater percentage of investments in alternative holdings than Travelers Cos. at 3.1 percent and Allstate at about 2.5 percent.