NEW YORK (Bloomberg) — Bermuda-based Primus Guaranty Ltd., which manages $24.2 billion in credit-default swaps, posted $262.6 million of second-quarter net income as the market value of contracts that protect against corporate defaults improved.

The figure compared with a net loss of $21.5 million a year earlier, the company said yesterday in a statement. Excluding market-value changes in its credit-default swaps and a $167.3 million "non-performance risk adjustment" from an accounting rule passed last year, Primus earned $18.5 million, or 41 cents a share in the quarter, compared with $14.9 million, or 33 cents a share the same period last year.

Primus's so-called economic profit, the most widely followed figure by Wall Street analysts, rose as the company sold default protection earlier this year at some of the widest yield premiums since the credit-default swap market was created more than a decade ago. The company didn't sell new contracts tied to individual companies during the second quarter, though, as the global credit crisis caused Primus's bank and securities firm clients to scale back risk.

"The continuing turmoil in the credit markets during the quarter impacted our ability to grow our credit protection business and assets under management," chief executive officer Thomas Jasper said in the statement. While there's been some signs of improvement since the end of the quarter, "we expect the credit markets will remain challenging through the second half of the year," he said.

Primus's portfolio of credit-default swaps has shrunk by $100 million since the end of the first quarter.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on the ability of companies or other borrowers to repay their debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should the borrowers fail to adhere to their debt agreements.