Bermuda-based insurer Max Capital Group Ltd. said yesterday that losses on alternative investments, such as hedge funds, cost the company about $85 million in the fourth quarter.

The company, which said it had reduced its hedge-fund exposure to 16 percent of its portfolio by the end of 2008, said it would scale back further to a maximum of 14 percent by the end of the first quarter.

At September 30, 2008, the proportion in alternative investments was 18.6 percent.

Max Capital is reallocating its portfolio "with a view to mitigating future volatility", chief executive officer Marston Becker said in the statement.

The total return on investments, including government securities, was one percent in the fourth quarter, and negative 1.7 percent for the year, the firm said.

"As a result of the high quality and defensive nature of Max's fixed income portfolio, it has continued to perform well, notwithstanding recent market volatility," Mr. Becker said.

"We plan to bring Max's allocation to alternative investments within a target range of ten to 15 percent of total invested assets, with a view to mitigating future volatility. During the quarter, we moved significantly closer to this goal with an alternative investment allocation at December 31, 2008 of approximately 16%.

"With recently affirmed ratings from Fitch Ratings, Moody's and A.M. Best, of which the latter has revised its outlook to positive from stable for all ratings of Max, and the increase in capital available to support underwriting that has resulted from our reduction in exposure to alternative investments, we believe Max is well-positioned heading into 2009 to take advantage of the market hardening that is becoming evident."