Global reinsurer Swiss Re reported a CHF381 million ($426 million) loss for the second quarter as mark-to-market losses on hedges and impairments offset positive results from underwriting.

The CHF1.1 billion ($1.2 billion) mark-to-market loss on corporate bonds hedges, combined with a CHF600 million ($671 million) impairment on securitised products, did most of the balance sheet damage.  

Another loss of CHF431 million ($482 million) from credit spreads completed a dramatic reversal in fortunes after Swiss Re made a CHF564 million ($631 million) profit in the corresponding period last year.

CEO Stefan Lippe says the loss is being countered, and the company is trying to improve its risk exposure “with the termination of substantially all of our portfolio credit default swap contracts”.

Those instruments contributed to an annual loss of CHF1 billion ($1.1 billion) for 2008 and led to the resignation of Jacques Aigrain as CEO in February.

The impairment costs unwound the effect of an increase in property casualty operating income which climbed 11% to CHF1 billion on the back of an average rate increase of 4% during July renewals.

The property and combined ratio improved to 89.4% from 91% in the same period last year.

Swiss Re expects to boost profits through further rate increases but concedes the economic environment remains uncertain.