* Manulife profit drops 56 pct, hit by markets
* Great-West profit up 15 pct, shifts management
TORONTO, May 2 (Reuters) - Canada's top life insurer, Manulife Financial Corp, reported a 56 percent drop in profit in the first quarter, while earnings at rival Great-West Lifeco Inc rose 15 percent as both companies met expectations in a tough market.
Shares of the two insurers were higher in midday trade on Thursday as investors took the results in stride, accustomed to wild swings in Canadian insurers' results over the past five years as volatile stock and bond markets have roiled asset values.
Toronto-based Manulife cited weaker life insurance sales and less favorable market conditions for the big drop in its quarterly earnings.
Net income fell to C$540 million ($535.63 million), or 28 Canadian cents a share, from C$1.22 billion, or 63 Canadian cents a share, a year earlier.
Manulife's insurance sales dropped 23 percent due to tax changes and the impact of higher prices, but the main weight on its earnings came from continued low interest rates and volatile equity markets.
Manulife said market movements stripped C$208 million from its bottom line. In the year-earlier period, stronger markets added C$75 million to its profit.
Excluding that impact and other special items, core profit rose 18 percent to C$619 million, or 32 Canadian cents a share, meeting analysts' expectations, according to Thomson Reuters I/B/E/S.
Rival Great-West, Canada's No. 2 insurer, said net income rose 15 percent in the first quarter to C$517 million, or 54.4 Canadian cents a share, from C$449 million, or 47.4 Canadian cents a share, a year earlier. That was just above analysts' forecasts for profit per share of 53 Canadian cents, according to Thomson Reuters I/B/E/S.
Total sales were up 23 percent, with strong profit growth in Canada and Europe offsetting a small decline in U.S. earnings. Its Putnam Investments banner notched up a net loss of C$14 million in the quarter, compared with a net loss of C$12 million a year earlier.
"The first quarter largely reflected what we have come to expect from GWO: stable operations combined with core earnings growth," Barclays Capital analyst John Aiken said in a research note.
"Mid-term growth remains contingent on the macro environment as well as the successful acquisition and integration of the Irish Life transaction announced in February."
Winnipeg, Manitoba-based Great-West bought state-rescued insurer Irish Life, Ireland's largest life and pensions company, for 1.3 billion euros in February and plans to merge it with its own Irish unit, Canada Life.
Great-West operates under the Canada Life, London Life and Putnam Investments banners. Its parent, Power Financial, is a subsidiary of Power Corp, which is controlled by Montreal's Desmarais family.
Great-West also announced a slew of management changes at its annual meeting on Thursday. It said Allen Loney would retire as president and chief executive, positions he has held since 2008, to be replaced by Paul Mahon, who has been chief operating officer for the past five years and associated with the company for 27 years.
In early afternoon trade, Manulife's shares were up 4.6 percent at C$15.44, while Great-West shares rose 1.1 percent to C$27.57.
The insurers must make regular reserve adjustments to reflect the effects of market activity on the portfolios they have set up to cover policy obligations.
As a result, Manulife has hedged much of its exposure to both stock markets and bond yields.
Barclays Capital's Aiken said core earnings growth was strong at both companies, but expressed concern about how their shares will react to market movements in the early weeks of the second quarter.
"While Manulife's and its peers' shares have held up quite well over the past month, we note that relatively flat equity markets and declines in government yields may begin to pressure absolute valuations," he said in a note.
Besides its Canadian operations, Manulife owns U.S.-based John Hancock and is growing rapidly in Asia, where it has a presence in 11 countries.
Helping offset the weakness in insurance was a 43 percent increase in Manulife's wealth management sales.
Manulife has set a target of C$4 billion in core profit by 2016, well above the company's 2012 full-year core profit of C$2.19 billion.