Bermuda reinsurer Max Capital Group said yesterday its will be changing its alternative investments strategy after third quarter results showed the company's return on that portfolio to have dropped 12.93 percent for the third quarter.

The return on its overall investment portfolio for the quarter ended September 30 was down 2.85 percent. It has declined 2.19 percent overall to date this year.

Alternative investments represent roughly one-fifth of the company's total invested assets of $5.2 billion, Max Capital said in a release from Business Wire, but the company plans to lower that allocation to 15 percent.

While the portfolio has taken a considerable hit, the company noted that its performance actually compares well with an index of hedge funds.

"The company's investment performance for the third quarter compares to negative 10.7 percent for the HFRI Fund of Fund Index, which the company believes is the most comparable benchmark for this asset class," Max said in the release. "On a year to date basis the return of Max Capital's alternative investments is negative 11.97 percent compared to negative 12.89 percent for the HFRI Fund of Fund Index."

Max chairman and CEO Marston Becker said the company has already moved to rebalance its portfolio and revamp its investing strategy.

"Max Capital's overall investment portfolio, while down 2.19 percent in the year through September 30, compares favourably to major indices," he said. "In keeping with Max's growing and changing underwriting platforms, we began an assessment of our asset mix during the summer.

"Worsening market conditions — third quarter hedge fund returns were the worst since benchmarking became available — necessitated an acceleration of that review, and we initiated a series of fund redemptions in the third quarter of 2008 to rebalance our portfolio in accordance with our updated investment strategy.

"Overall, the recent confluence of measured financial, underwriting, and corporate stability events likely presents opportunity for most companies in our industry, including Max as we continue to maintain a strong capital position to take advantage of ongoing market opportunities."

The company currently estimates its book value at September 30, 2008 to be in the range of $22.00 to $23.00 per share.

The company said it will reduce its allocation to alternative investments from the current 15-25 percent range to 10-20 percent of invested assets.

Max also plans to increase "the number of strategies employed and managers participating within the alternative investment portfolio, employing a less volatile, more market neutral benchmark to monitor risk and measure relative returns, reduce exposure to this asset class over the next two quarters to the mid point (15 percent) of the company's new stated allocation".

The company said: "The proposed changes are intended to lower volatility of monthly, quarterly and annual returns while maintaining an attractive total return."

Max shares rose 25.99 percent yesterday, trading on the New York Stock Exchange. The company's shares closed at $19.49, a rise of $4.02 from Friday.

The company's share value has ridden the rollercoaster of the financial crisis over the past year, ranging from a low of $12.01 to a high of $31.