Max Capital Group Ltd. said yesterday it had seen the value of its hedge fund investments fall by $70 million over the the last two months.

The Bermuda-based insurer and reinsurer also said its alternative investment portfolio made up 18.6 percent of its total investments - a proportion it aims to reduce to 15 percent.

The information came in an update on the company's investment performance for the months of October and November.

The unrealised losses in the hedge-fund investments, which will be accounted for in the company's fourth-quarter income statement, amounted to negative 6.8 percent. This compares to negative 11.7 percent over the same period for the HFRI Fund of Funds Index, the company said.

For the first 11 months of the year returns totalled negative 18.4 percent compared to negative 23.5 percent for the HFRI Index.

Estimated total return on Max's overall investment portfolio, including investment income, for the two months ended November 30, 2008 was negative 0.3 percent and for the first 11 months of the year was negative 2.47 percent.

The estimated total principal decline on its overall investment portfolio for the two months ended November 30, 2008, including unrealised gains and losses but excluding investment income, was $45 million, representing $0.81 per share.

Max Capital's portfolio of cash and fixed maturities, which represented 81.4 percent of the company's total invested assets of approximately $5 billion as of September 30, 2008, has increased approximately $25 million for the two months ended November 30, 2008.

"We believe this increase is attributable to the composition of the portfolio, which is well diversified, of high quality and highly liquid," the statement said. "Approximately 70 percent of the portfolio is rated Aaa or above, including 50 percent that is invested in cash, governments, agencies and agency mortgage-backed securities."

Marston (Marty) Becker, chairman and chief executive officer of Max Capital, said: "In this period of unprecedented market events and volatility, we believe interim investor communication is desirable.

"The high quality of Max's fixed income portfolio has kept our investment mark-to-market performance within very manageable levels.

"We are making good progress with our plans to reduce our allocation to alternative investments to approximately 15 percent, while increasing the diversity of those investments; both with a view to mitigating future volatility. This strategy should enable us to have more capital available for our global underwriting activities. With mature and diverse underwriting operations in Bermuda, Ireland, the US and, now, at Lloyd's, we believe we are well-positioned to execute our 2009 business plan and to take advantage of the market hardening that is becoming apparent, particularly in reinsurance lines."