Bermuda-based Max Capital Group Ltd. said its hedge fund investments declined in value by some $233 million in 2008 contributing to a fall in book value for the year of at least 16 percent.

In its year-end letter to shareholders, released last Friday, Max said alternative investments had made up approximately 20 percent of invested assets for most of 2008, a proportion which the company has reduced and is looking to reduce further after a negative year for the hedge fund industry.

Though Max will not release its fourth-quarter and year-end results until February 11, it estimates that its book value at December 31, 2008, will be between $22.73 and $23.08, versus $27.54 at the end of 2007 and $22.77 at September 30, 2008.

The estimated alternative investment losses of $233 million break down to $4.11 per share and "more than offset positive underwriting results", resulting in a year of record losses for the company, Max chief executive officer Marston Becker wrote in the letter.

Net operating loss per diluted share for 2008 is estimated to be between $2.65 and $3.00 and net operating return on average shareholders' equity (ROE) is estimated at between negative 11 percent and 12 percent. Unrealised losses are accounted for in the company's net income figure.

Mr. Becker summed up Max's 2008 by saying it was "a terrific operating year overshadowed by unprecedented investment volatility" and predicted strong performance in 2009.

The first year that the company had seen losses in the its alternative investment portfolio had prompted the company to further scale down its hedge fund investments and Mr. Becker signalled the intention to reduce these to 12 percent or less of total invested assets by the end of the first quarter.

By the end of the year, Mr. Becker said about 86 percent of the company's invested assets were in high quality investment grade bonds or cash, with 14 percent in alternative investments. The company's overall investment income was negative 1.1 percent.

Mr. Becker expects an improved underwriting environment for 2009, with shorter tail lines like property and aviation seeing rate rises first, while longer tail casualty lines would likely rise later in the year.

"Max's renewals at January 1, 2009 would support this view, as property rates on line were up — particularly in reinsurance — and casualty pricing was no longer down, but was relatively flat," Mr. Becker wrote.

"With this pricing improvement and with Max's expansion of underwriting platforms and capabilities, gross premiums written in 2009 are projected to grow by approximately 21 percent to approximately $1.23 billion in the company's specialty property and casualty business."

Max, which has been in operation for nearly ten years, has underwriting facilities in Bermuda, Dublin, at Lloyd's and in six major US cities, with over 300 employees in all.