TORONTO (Bloomberg) — Manulife Financial Corp., Canada's largest insurer, said first-quarter profit increased as stock prices boosted earnings from its mutual fund businesses in Canada and the US.First-quarter shareholders' net income climbed 3.6 percent to C$986 million ($890 million), or 63 cents a share, from C$952 million, or 59 cents a share, a year earlier, the Toronto-based insurer said yesterday in a statement sent by Canada NewsWire. It was the smallest increase in quarterly profit in four years, because of C$69 million in costs to "reposition" assets in accordance with new accounting standards.

Manulife is the second of Canada's three main insurers to report higher earnings from money management, after a 2 percent increase on Canada's benchmark Standard & Poor's/TSX Composite Index in the first quarter helped boost fund sales. Sun Life Financial Inc. said on May 1 that profit before some costs rose 13 percent, led by its US mutual fund unit.

"Anyone that has equity exposure in this space should do well," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier Inc. in Toronto, which manages the equivalent of about $3.9 billion, including Manulife shares. "It's not only in terms of management fees from funds under management, but also in terms of money coming into that asset class."

Shares of Manulife fell 33 cents to C$40.01 at 11:24 a.m. in trading on the Toronto Stock Exchange and have risen 1.7 percent this year, compared with a 3 percent increase on the 44-member S&P/TSX Financials Index.

Excluding one-time items, profit was 68 cents a share, missing the 69 cent-a-share average estimate of 12 analysts compiled by Bloomberg.

Profit from Manulife's US asset-management arm, which includes Boston-based John Hancock Financial, increased 31 percent to C$335 million, while earnings from its U.S. insurance business fell ten percent to C$142 million.

"The company has been pretty good at foreshadowing that `Hey, these types of growth rates aren't necessarily sustainable'," said Jason Bilodeau, an analyst at UBS Canada in Toronto, before results were released. "But when you look at the absolute levels and see where these guys are positioned in the market, they're actually putting up some pretty healthy sales numbers."

Earnings from Canada, which includes insurance and asset- management, fell 8.4 percent to C$218 million. Profit from the Asia and Japan unit rose 32 percent to C$214 million.

Manulife raised its quarterly dividend by ten percent to 22 cents a share, the third increase in the past eight quarters.

Analysts such as Tom MacKinnon at Scotia Capital have said that Manulife could use its excess cash, which he estimates at about C$4 billion, to expand in the US through acquisitions.

"Investors are still saying 'OK, are you going to buy something else? You still seem to have a lot of capital available,"' MacDougall's Nakamoto said.