(Bloomberg News) Prudential Financial Inc., the second-largest U.S. life insurer, swung to a loss in the third quarter as derivatives weighed on results.

The net loss was $618 million, compared with a profit of $1.59 billion a year earlier, Newark, New Jersey-based Prudential said yesterday in a statement. Operating profit, which excludes the results of policies sold before the firm went public and some investments, was $1.53 a share, missing the $1.67 average estimate of 17 analysts surveyed by Bloomberg.

Chief Executive Officer John Strangfeld is trimming expenses and deploying cash for deals and buybacks as he targets a return on equity of at least 13 percent next year. ROE, a measure of profitability, was 11 percent to 11.5 percent last year, Strangfeld said Feb. 15. The insurer uses derivatives to guard against market risks such as interest-rate drops and currency fluctuations.

"The U.S. business, with the low interest-rate environment here, is going to be somewhat challenged," Edward Shields, an analyst at Sandler O'Neill & Partners LP, said before results were announced. "They're either going to have to cut expenses generally speaking, accelerate share buybacks, or increase the bottom line contribution from the international segment," to achieve the ROE target.

Prudential boosted its annual dividend to $1.60 a share from $1.45, the company said in a separate statement. The insurer plans to begin making payouts quarterly in 2013.

Derivatives Loss

The insurer fell 39 cents to $55 at 4:24 p.m. in New York after the announcement. It declined 4.6 percent to $55.39 earlier in regular trading. Prudential has climbed 11 percent this year, outpacing the 4.5 percent advance of MetLife Inc., the largest U.S. life insurer.

Prudential said it recorded a pretax loss of $684 million from derivatives, including contracts used to hedge risks from products it sells. The insurer also lost $521 million before taxes on foreign currency derivatives, primarily from fluctuations in the value of the yen.

A $698 million charge tied to long-term care insurance reflects "updates of actuarial assumptions," the firm said. Prudential stopped selling group and individual policies this year, joining rivals including MetLife in retreating from the industry amid rising costs and low interest rates.

Prudential agreed in September to buy Hartford Financial Services Group Inc.'s individual life-insurance business for $615 million as Hartford focuses on property-casualty coverage. The deal may help Prudential reach the ROE goal, Eric Berg, an analyst at RBC Capital Markets, wrote in a note in September.

Pension Business

Strangfeld, 58, is also boosting Prudential's pension business, agreeing last month to assume $7.5 billion of retirement-plan obligations from Verizon Communications Inc. General Motors Co. paid Prudential a premium of about $25 billion to take on pension obligations for about 110,000 retirees, the insurer said Nov. 2.