* Fed pledge to keep rates low could squeeze profits
* UBS analyst cuts Manulife, Sun Life ratings
* Manulife, Sun Life lead declines with 5.1 pct drop
TORONTO, Jan 26 (Reuters) - Shares of Canadian life insurers fell hard on Thursday as the U.S. Federal Reserve’s pledge to keep interest rates low through 2014 suggested their rate-sensitive profits would remain under pressure.
Manulife Financial, Canada’s biggest insurer, and Sun Life Financial were both down 5.1 percent late in the session, as the Fed move prompted UBS Investment Research to downgrade the companies’ shares.
Great-West Lifeco, Canada’s No. 2 insurer, was down 3.1 percent, and smaller rival Industrial Alliance was down 3.3 percent.
Profit at insurers has suffered over the past three years from falling interest rates, which lower the expected long-term payouts from the bonds they hold to offset liabilities, forcing them to set aside additional reserves.
UBS analyst Peter Rozenberg cut Manulife and Sun Life - the two insurers most sensitive to market moves - to “neutral” from “buy”, and chopped his 12-month price target on Manulife to C$13 from C$15.
In a note, Rozenberg said the Fed’s move “could continue to undermine growth, profits, return, and capital” at the insurers.
Both Manulife and Sun Life took losses in the third quarter due to falling stock markets and low bond yields. Analysts are calling for another dismal series of reports when fourth-quarter results are released next month.
Manulife was down 64 Canadian cents at C$11.91, while Sun Life was down C$1.07 at C$20.04 on the Toronto Stock Exchange. Great-West was down 69 Canadian cents at C$21.83 and Industrial Alliance was down 92 Canadian cents at C$26.63. (Reporting By Cameron French; editing by Rob Wilson)