Nov. 4 (Bloomberg) -- Manulife Financial Corp., North America’s largest insurer by market value, may report a decline in third-quarter profit tomorrow as it increases reserves to protect against falling stock prices, analysts said.

The owner of John Hancock Financial may set aside as much as C$500 million ($467.5 million) for declines in segregated funds and other products, Desjardins Securities analyst Michael Goldberg said in a research note. Manulife may post earnings of 18 cents a share, down 45 percent from a year ago, according to the median estimate of five analysts surveyed by Bloomberg.

While a 9.8 percent rebound in the Standard & Poor’/TSX Composite Index will benefit insurers in the third quarter, earnings may be cut by higher reserves, said BMO Capital Markets analyst John Reucassel. Manulife, Great-West Lifeco Inc. and Sun Life Financial Inc. are scheduled to report results tomorrow.

“There’s just so many moving parts,” said Gavin Graham, director of investments at Bank of Montreal Asset Management in Toronto, which oversees about C$45 billion, including insurance stocks. “You don’t have any good idea of how much they’re going to write down.”

Manulife Chief Executive Officer Donald Guloien said the company needs to build “fortress” levels of capital, after equity declines led to higher costs to guarantee annuity client returns. The Toronto-based insurer cut its dividend in half last quarter, the first decrease since going public a decade ago.

Draconian Capital

“We have to consider capital scenarios that are far more draconian than what I think is likely to happen,” Guloien said in a Sept. 30 interview in New York. “We know it’s the right thing to do for the long term.”

Analysts such as Mario Mendonca at Genuity Capital Markets will be focusing on so-called “adjusted” earnings, which exclude gains and losses from stocks. On that basis, he expects Manulife to earn 48 cents a share, down from 72 cents a year ago.

“The fact that the market’s up 20 percent this quarter, or down 20 percent should not make any difference at all to your assessment of the management,” BMO’s Graham said. “It’s a valid point to say you should leave out a lot of the stock- market movement.”

Sun Life

Sun Life will also report results on that basis this quarter, Mendonca said in an Oct. 19 note. Before one-time items, the Toronto-based insurer may post a loss of 2 cents a share, the median estimate of nine analysts surveyed by Bloomberg. A year ago, Sun Life reported adjusted profit of C$1.01 a share, according to Mendonca.

The owner of Boston-based MFS Investment Management told investors that third-quarter earnings may be reduced by as much as C$550 million to reflect updated equity market and interest- rate assumptions.

Sales of Sun Life’s annuities “are expected to be strong, especially in the U.S. as the company benefits from a flight to quality among consumers,” BMO’s Reucassel said.

Great-West, Canada’s second-biggest insurer, may report profit before one-time items of 49 cents a share, according to the median estimate of nine analysts. A year ago, Great-West had adjusted profit of 55 cents, according to Mendonca.

Manulife shares rose 20 cents to C$20.59 in 4:10 p.m. trading on the Toronto Stock Exchange. Sun Life fell 12 cents to C$30.11. Great-West rose 41 cents, or 1.7 percent, to C$24.11.

To contact the reporter on this story: Sean B. Pasternak in Toronto at spasternak@bloomberg.net.

Last Updated: November 4, 2009 16:34 EST