MetLife Inc's fourth-quarter earnings fell 70 percent because of investment losses, but its operating profit beat Wall Street expectations by a penny on Tuesday as the credit market began to thaw boosting revenues at the biggest U.S. life insurer.

The company also confirmed it was in talks to buy American International Group Inc's American Life Insurance Company (ALICO) unit, but no agreement had been reached.

The two U.S. insurers were in talks on a deal that could value ALICO at between $14 billion and $15 billion, according to a source, Reuters reported last month.

MetLife management has said in the past it aimed to expand internationally. ALICO sells life insurance and retirement products in 54 countries.

MetLife's quarterly operating profit, the figure that analysts watch closely, was five times higher than last year, at $793 million, or 96 cents per share.

Analysts on average expected operating earnings of 95 cents per share, according to Thomson Reuters I/B/E/S. MetLife in December said it expected operating earnings between 90 cents and 95 cents per share.

Shares fell 2.7 percent to $35.37 in after-hours trading after rising 1.2 percent on the New York Stock Exchange.

MetLife and its next-biggest rival Prudential Financial

have suffered because of the 2008 upheaval in credit markets because the sector holds trillions of dollars of investments. As the credit crisis eased, the companies emerged stronger than some peers and won some new business.

MetLife handled the credit crisis a little better than a lot of their peers because they were early in going out and raising capital, said Drew Woodbury, equity analyst at Morningstar. The results show the year was good as a whole.

In the latest quarter, operating revenue rose 13 percent to $13.32 billion.

Including one-time investment gains and losses, New York-based MetLife's earnings fell to $289 million, or 35 cents per share, from $954 million, or $1.20 a share, a year earlier. The profit follows three straight quarterly losses that were partly tied to investment losses.

The results included $557 million in net after-tax investment losses. Of that, $527 million was derivatives losses tied to improvement in the company's credit spreads.

MetLife's premiums, fees and other revenue jumped 14 percent to $9.32 billion. The company said it gained market share in the corporate benefit funding business.

U.S. annuity sales were $4.2 billion, including an 8 percent rise in variable annuity sales.

MetLife unveiled a detailed outlook in December in which it said cost cuts and improved returns would help it boost full-year 2010 operating earnings 50 percent to between $3.3 billion and $3.6 billion, or $4 to $4.40 per share.

(Reporting by Jonathan Spicer; editing by Carol Bishopric, Robert MacMillan and Leslie Gevirtz)