MetLife , the largest U.S. life insurer, posted a quarterly net loss of $1.4 billion on Thursday, as investment losses took their toll.

But the New York-based insurer's operating earnings, which excluded the investment losses, were better than expected, helped by stronger premium and fee income. Its shares rose about 1.3 percent in after-hours trading.

MetLife's net loss was equal to $1.74 a share, compared with a profit of $915 million, or $1.26 a share, a year ago.

The loss included after-tax realized losses of $2.6 billion -- $1.8 billion of which stemmed from losses on derivatives. Derivatives are a type of structured investment tied to the value of underlying assets.

MetLife's derivatives losses largely stemmed from improvement in the company's own credit spreads, hitting the valuation of its insurance liabilities by about $1 billion. It also recorded some losses on derivatives used to hedge interest rates and foreign-currency fluctuations.

MetLife said the writedowns were consistent with its expectations.

I did not expect such a huge net loss, said Alan Rambaldini, an analyst with Morningstar in Chicago.

Still, MetLife's operating results were pretty consistent, said Rambaldini. There were slow, steady incremental steps, but full recovery really depends on how the (broader) markets react, he added.

Life insurers such as MetLife and its next-biggest rival, Prudential Financial
, which reports earnings next week, have been particularly susceptible to recent turmoil in the credit markets. The industry as a whole holds trillions of dollars of investments, and is one of America's biggest commercial real estate investors.

Excluding the losses, MetLife's operating earnings were $723 million, or 88 cents a share, compared with $887 million, or $1.22 a share, in the year-ago period.

Analysts on average expected MetLife to post operating earnings of 68 cents a share, according to Reuters Estimates.

Premiums, fees and other revenue rose 6 percent to $8.4 billion.

But net investment income fell 10 percent to $3.9 billion. MetLife, like some of its rivals, said it had reduced its holding of short-term investments by $21.3 billion, opting to put more cash into longer-term, higher-yielding assets.

RETIREMENT PLANNING

MetLife said its annuities business saw a 43 percent increase in deposits in the quarter, stemming from a record $4.5 billion in variable annuity deposits.

Life insurers are seeing increased demand for annuities as Americans begin to deploy cash more actively into retirement investments.

Variable annuities are much like mutual fund investments, except they include features such as a guaranteed stream of retirement income.

But MetLife's strong balance sheet is helping it stand out against rivals.

MetLife, unlike some of the other companies, is benefiting from a 'flight to quality,' said Morningstar's Rambaldini.

Unlike half a dozen of its peers, MetLife never asked to be included in TARP, a federal funding program originally intended for banks, instead tapping capital markets when it needed to bolster capital.

The company's net worth, or the book value of its equity, rose about 18 percent in the quarter to roughly $25 billion.

Shares closed up 4 percent at $33.57 on Thursday and were up 1.3 percent at $34 in after-hours trading.

(Reporting by Lilla Zuill; Editing Bernard Orr and Matthew Lewis)