(Bloomberg) -- MetLife, the largest U.S. life insurer, posted first-quarter profit that missed analysts’ estimates as investment income declined on a slump in hedge fund holdings.

Net income rose 2% to $2.2 billion from $2.16 billion a year earlier, bolstered by gains on derivatives, the New York-based insurer said Wednesday in a statement. Operating profit, which excludes the benefit from those contracts and some other one-time items, was $1.20 a share, missing by 18 cents the average  estimate of 17 analysts surveyed by Bloomberg.

Chief Executive Steve Kandarian has been battling low interest rates and market swings that have weighed on investment returns in recent quarters. He’s planning to separate a U.S. retail unit through a sale, spinoff or public offering, a move that he said will improve the insurer’s ratio of free cash flow to earnings.

“While market headwinds remain, we experienced volume growth, and underwriting results were solid,” Kandarian said in the statement.

MetLife joins insurers including AIG in citing pressure from holdings beyond the bond portfolio. So-called variable investment income dropped 56% to $165 million “mostly due to weak hedge fund performance,” MetLife said in the statement.

Revenue from the entire investment portfolio, which is dominated by bonds and loans, fell 17% to $4.56 billion. The yield on the fixed-maturity holdings slipped to 4.43% from 4.64% a year earlier. MetLife has more than $370 billion of bonds.

AIG, PRUDENTIAL

AIG posted its third straight quarterly loss on Monday. Prudential, the second-largest U.S. life insurer, said Wednesday that net income slipped 34% to $1.34 billion.

MetLife’s operating return on equity was 9.3% in the quarter, compared with 11.7% in the first three months of 2015.

Adjusted operating earnings at the the insurer’s largest unit, the Americas division, slipped 10% to $1.25 billion from the same period a year earlier, driven by weaker investments. The corporate-benefit funding unit, which offers pension and retirement products, contributed $325 million, down from $369 million. Latin America climbed 15% to $152 million and included a one-time tax charge in Chile.

CATASTROPHE COSTS

The Americas retail unit contributed $586 million, down from $656 million a year earlier, as sales of life insurance slipped, and the property-casualty segment had higher catastrophe costs. Kandarian has named Eric Steigerwalt to lead the U.S. retail unit that’s slated for separation. Profit at the business selling workplace coverage fell about 20 percent to $191 million.

MetLife has also been contending with new regulations including Labor Department rules announced last month to protect retirement savers from getting conflicted advice. Kandarian struck a deal in February to sell a network of about 4,000 financial advisers to Massachusetts Mutual, a transaction that will help MetLife become “more agile” by separating the distribution arm from a unit that manufactures the retirement products, the CEO said at the time.

Kandarian prevailed in March in his fight against a U.S. government panel that labeled the insurer too big to fail. U.S. District Judge Rosemary M. Collyer in Washington rescinded that tag and said that the Financial Stability Oversight Council’s process to designate the insurer as a systemically important financial institution was “ fatally flawed.” The government is appealing.

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