HAMILTON, Bermuda (HedgeWorld.com)–Max Re Capital Ltd. expects to post a third quarter loss in the period ending Sept. 30 because of lagging hedge fund performance.

Though third quarter returns were positive for the reinsurer’s hedge fund portfolio, they weren’t enough to produce earnings for the company, according to a Max Re statement. “While we are disappointed in the absolute return of our alternative investment portfolio this quarter, it is reassuring that in the continuing, challenging investment climate, our risk management disciplines result in our alternative investment portfolio producing positive quarterly returns,” said Robert J. Cooney, chairman, president and chief executive, in the statement. The announcement follows a July reduction in earnings guidance that anticipated earnings in the flat to slightly positive range for the year.

Max Re did not provide any further information about hedge fund performance or estimated earnings for the quarter. Through June, Max Re’s hedge fund of funds, Max Re Diversified Strategies, Ltd., returned about 60 basis points, according to Max Re’s web site.

The hedge fund portfolio is invested mainly through Moore Diversified Strategies Ltd., a hedge fund of funds managed by Louis Bacon’s firm, Moore Capital Management Inc., Morganville, N.J. An affiliated firm, Moore Holdings, L.L.C., and Capital Z Partners, are the primary founders of the company.

Max Re’s share price on Nasdaq traded down about 3% at US$9.55 the morning of Oct. 4, the day after the announcement.

Max Re is one of a handful of Bermuda-based reinsurance companies investing a portion of its investment portfolio in hedge funds. Others include XL Capital Ltd., Stockton Reinsurance Ltd., Grand Central Re Ltd. (an affiliate of Max Re) and Hampton Re Ltd.