* Core profit meets estimates
* Insurance sales down 23 percent
* Wealth sales stronger
TORONTO, May 2 (Reuters) - Manulife Financial Corp reported a 56 percent drop in first-quarter earnings on Thursday, citing weaker sales of its life insurance and less favorable market conditions.
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.
Insurance sales dropped 23 percent due to tax changes and the impact of higher prices, but the main weight on earnings came from the continued slide in interest rates, as well as volatile equity markets.
Manulife said market movements stripped C$208 million from the bottom line. In the year-earlier period, stronger markets added to profit by C$75 million.
Excluding that impact and other items, core profit rose 18 percent to C$619 million, or 32 Canadian cents per share, meeting analysts' expectations, according to Thomson Reuters I/B/E/S.
Volatile stock and bond markets have led to wild swings in Canadian insurers' results over the past four years as they must make regular reserve adjustments to reflect the effects of market activity on the portfolios they have set up to cover future policy obligations.
As a result, Manulife has hedged much of its exposure to both stock markets and bond yields.
Barclays Capital analyst John Aiken said core earnings growth was strong, but expressed concern about how the company's 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.
Manulife, which closed at C$14.76 on the Toronto Stock Exchange on Wednesday, is up 6.4 percent over the past two weeks, but is trading essentially flat in April.
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 wealth management sales.
Toronto-based Manulife, the first Canadian life insurer to report first-quarter results, 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.