Swiss Re reported a shock 1.2 billion Swiss franc ($1.07 billion) writedown due to the subprime crisis, sending its shares down sharply and making it the first reinsurer to suffer a big, direct hit from the crisis.

The losses announced on Monday stemmed from protection Swiss Re sold to a client against a fall in the value of a portfolio -- underscoring the depth of the crisis and how it has hit financial firms like banks, insurers and hedge funds in often unexpected ways.

Rival Munich Re said it had nothing new to announce after the news, meaning Swiss Re may be alone among the big reinsurers to have taken a direct hit so far from the credit crisis.

The unexpected loss may raise questions about Swiss Re's push into novel investment bank-like services, a cornerstone of group strategy under Chief Executive Jacques Aigrain in a move to diversify away from its core business of providing insurance to insurers.

Swiss Re has conducted a thorough review of other credit default swap exposures and was satisfied it has no similar exposures, according to a slide presentation before a conference call with analysts.

Its shares were down 4.3 percent at 0835 GMT, making it the biggest loser among the index of Europe's top 300 companies, which was up 0.54 percent at the same time.

Unprecedented and severe ratings downgrades by credit ratings agencies and the lack of a liquid market for the securities has resulted in a significant and material reduction of the value of the underlying assets, Swiss Re said on Monday.

The speed of the financial market deterioration and the scale of the loss underscored the need for more proactive management of this type of financial market transaction, Swiss Re said, adding that it had taken steps to ensure this.

It said the securities remained exposed to market value changes but added that these were substantially mitigated by the group's conservative market value estimates for collateralized debt obligations (CDO) in the portfolio.

The investment-grade credit default swaps were structured to provide protection against a remote risk of loss, Swiss Re said in a statement. The portfolios protected via the credit default swaps consisted mainly of mortgage-backed securities.

While most of the exposure is to prime and mid-prime there is exposure to subprime and to asset-backed securities in the form of collateralized debt obligations (CDOs), Swiss Re said.

Swiss Re said it had marked down the CDOs to zero while the subprime securities were written down to 62 percent of their original value and other smaller adjustments were made to the remainder of the portfolio.

The company, which said it was still committed to a share buyback program, repeated its targets for 13 percent growth in earnings per share growth over the cycle and a 13 percent return on equity.

The writedown amounted to 981 million francs after tax, the company said.

The market value of the portfolio is now 3.6 billion francs.

The company said improvement of its financial risk-taking process was appropriate and it had taken action to make the changes.

(Additional reporting by Thomas Atkins; Editing by Quentin Bryar