For MetLife Inc., it’s what the insurer isn’t selling that’s helping this year’s record rally.

MetLife, the largest U.S. life insurer, is retreating from products such as variable annuities, where profits are tied to market fluctuations, after equity-market swings and low bond yields unnerved investors, contributing to a 30 percent stock slide in 2011. Steve Kandarian was named chief executive officer that year and revealed the strategy shift in 2012. The shares have jumped 56 percent since Dec. 31, headed for their best annual gain since the company went public in 2000.

MetLife is cutting “fat-tail risk,” Kandarian said in October, referring to vulnerability to extreme market swings. The company is scheduled to hold a conference call tomorrow to discuss its performance and 2014 outlook.

“We must accept risk to earn an appropriate return for our shareholders, but determining the type of risk is a critical management decision,” said Kandarian, 61. “Relative to a few years ago, we have been actively diversifying MetLife’s risk profile.”

U.S. life insurers underperformed most industries over the past decade after making market bets that should have been left to banks, McKinsey & Co. said in a report this year. Insurers are better suited to managing risks tied to life expectancies, according to the report.

“One of the main things that they’re trying to do is shift their business mix to higher returns and less volatile lines of business,” Jimmy Bhullar, an analyst at JPMorgan Chase & Co., said of MetLife in a phone interview. “Five years down the road, MetLife’s business mix will be a lot better.”

Kandarian’s Goal

The strategy is part of an effort by Kandarian to increase return on equity to at least 12 percent by 2016, compared with about 11 percent last year. He’s highlighted that MetLife’s cost of equity capital, a metric that climbs with volatility, is higher than the profitability measure. He showed investors a presentation in May that displayed the gap between the figures.

“This slide is not necessarily a happy slide,” Kandarian said. “We’re working on both, trying to drive up the return on equity for MetLife and drive down the cost of equity capital.”

Kandarian is ending MetLife’s December practice of releasing per-share earnings guidance for the upcoming year at the annual presentation. Such projections have limited value given the sensitivity of results to capital markets, and the insurer will still discuss how much certain operations typically earn, the CEO said in October.