Max Capital Group Ltd. yesterday said the return on its alternative investments for the first two months of this year is expected to be around two percent, or an increase in value of approximately $18 million.

The specialty insurer and reinsurer, which recently announced its intentions to merge with IPC Holdings Ltd., another Bermuda company, is in the process of reducing the percentage of its assets invested in hedge funds and other alternative investments.

Max's two percent returns for the two months compares to 0.36 percent for the HFRI Fund of Funds Composite Index, which the company believes is the most comparable benchmark for this asset class.

Marston (Marty) Becker, chairman and chief executive officer of Max Capital, said: "Recent results demonstrate that the actions Max took in the latter half of 2008 to rebalance and reduce risk in our alternative asset portfolio are working.

"Over the course of 2008, we reduced our alternative investment allocation from approximately 21 percent at December 31, 2007 to 14 percent at year-end 2008. Our intention is to further reduce the allocation to a 10 to 12 percent range, as well as to rebalance strategies within this asset class.

"This transition is well underway and, following the anticipated merger of IPC and Max, we expect the combined company to target this same 10 to 12 percent level of alternative assets, and to further diversify its allocation within alternative investments.

"It is expected that no more than five to seven percent of invested assets will be in hedge funds with the balance of the 10 to 12 percent of invested assets in other attractive alternative asset classes.

"These steps are intended to lower the volatility of investment returns to a level considered appropriate for a growing global specialty insurance and reinsurance company such as Max."