Manulife Financial Corp. today reported a 21% increase in fourth-quarter profit.

The insurer said earnings were $1.1 billion, or 70¢ a share, in the three months ended Dec. 31, 2006 the first time quarterly income had broken above $1 billion.

That was up from $908 million, or 56¢ a share, for the same period in 2005 and driven by strong equity markets and a tax windfall due to a rule change in Ontario.

The insurer’s premiums and deposits slipped 2.5% to $15.8 billion.

Manulife blamed the dip on the temporary suspension of sales of a product in Japan and the adverse impact of a strong Canadian dollar.

The insurer’s return on equity rose to 18% in the fourth quarter, its highest level since Manulife bought Boston-based John Hancock in 2004. ROE was 15.5% in the fourth quarter of 2005.

Total funds under management increased by 11%, or $43 billion, over last year to reach a record level of $414 billion at Dec. 31.

Manulife declared a quarterly dividend of 20¢, unchanged after last quarter’s increase.

Net income at its U.S. insurance business dropped 6% to $168 million largely because of unfavorable claims experience at John Hancock Long Term Care. But U.S. wealth management earnings jumped 39% to $300 million because of strong investment results in rising equity markets, and higher fee income.

Earnings in Manulife’s Canada division rose 24% to $247 million, helped by a tax gain.

In its Asia and Japan division, earnings fell 16% to $191 million.

“The strong organic growth across all of our operations is encouraging and contributed to another year of record earnings,” said Dominic D’Alessandro, president and CEO, in a news release.

“In both our insurance and wealth management businesses we continued to focus on product innovation, distribution excellence and customer service. The result was a record level of premiums and deposits and funds under management that now exceed $400 billion.”