Sept. 25 (Bloomberg) -- Swiss Reinsurance Co., the world's second-largest reinsurer, estimated it lost 277 million Swiss francs ($256 million) on structured credit-default swaps since the end of the second quarter as the credit crisis deepened.

The mark-to-market loss on the contracts was 245 million francs in July and August and the Zurich-based reinsurer company expects a further 32 million francs through Sept. 19, it said today. The writedowns bring losses from the contracts to about 2.8 billion francs since November, spokeswoman Simone Lauper said.

Swiss Re said while it will remain exposed to market swings, it has reduced risks by cutting stock investments and hedging corporate bond risks, and expects reinsurance prices to rebound after this year's hurricanes. The company, led by Chief Executive Officer Jacques Aigrain, reiterated a target for earnings-per-share growth of 10 percent and a return on equity of 14 percent ``over the cycle.''

``What they've released today should be reassuring,'' said Tim Dawson, an analyst at Helvea in Geneva who has a ``neutral'' recommendation on the stock. The company has increased its hedges on corporate credit and the remaining risk related to credit- default swaps means that ``even if it all goes to zero then in the greater scheme of things the loss is relatively immaterial.''

The reinsurer rose 3 francs, or 4.8 percent, to 65.55 francs in Swiss trading.

CDS Market Shrinks

Swiss Re still had structured CDS for 1.95 billion francs at the end of August, priced at 42 percent of par value. Credit- default swaps are contracts designed to protect bondholders from nonpayment. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements.

Credit-default swap dealers cut the volume of outstanding contracts for the first time in the six months through June amid efforts to reduce risks. The volume of outstanding trades fell to $54.6 trillion from $62 trillion, the International Swaps and Derivatives Association said yesterday. It was the first drop since ISDA started surveying traders in 2001.

On the asset side, Swiss Re had a total of 38.9 billion francs invested in structured products as of Sept. 19, down from 39.2 billion francs at the end of August. It cut its net equity exposure to 681 million francs from 913 million francs at the end of August, it said.

``In the current market environment, we focus on ensuring the resilience of our investable assets and the underlying quality of our reinsurance business,'' Aigrain said in the statement. ``The difficult market conditions also create new opportunities.''

Buying Protection

In the first three weeks of September, Swiss Re increased the protection it bought to hedge its corporate bond portfolio to 33.4 billion francs from 18.8 billion francs, cutting its net risk from this asset class to 1.39 billion francs by Sept. 19.

``What we have done is appropriate given the deep uncertainties in the market,'' Chief Financial Officer George Quinn told reporters in Zurich. ``We tried to bring our exposure down in as short an order as possible.''

Asked about American International Group Inc., Quinn said the insurer that agreed to be taken over by the U.S. government ``is a very important client of Swiss Re, and we will continue to support AIG in the future.''

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net

Last Updated: September 25, 2008 12:30 EDT