* Manulife Q1 share loss C$0.67 vs EPS C$0.57 last year
* Sun Life Q1 share loss C$0.38 vs EPS C$0.93 last year
* Great-West profit of C$0.345 EPS vs C$0.552 last year
* Declines in equity markets drive down results
* Manulife, Sun Life shares sink, Great-West up (Adds fund manager comment)
By Andrea Hopkins
TORONTO, May 7 (Reuters) - Canada's three largest insurers reported weaker-than-expected quarterly results on Thursday, hurt by ailing stock markets, credit impairments and the need to shore up reserves.
Manulife Financial Corp (MFC.TO), Canada's largest insurer, posted a first-quarter loss of C$1.07 billion ($916 million), or 67 Canadian cents a share, compared with a profit of C$869 million, or 57 Canadian cents a share, a year earlier.
That was worse than analysts' expectations of a loss of 37 Canadian cents, according to Reuters Estimates.
All three insurers were hit hard by declines in global equity markets, where much of their investments are held. Credit downgrades also hurt earnings as all three took some degree of credit impairment charges.
With stock markets having bounced back, many investors expect better things from the insurers in the months ahead.
"Frankly the first quarter is likely to have been the worst one we're going to see," said Gavin Graham, chief investment officer at Guardian Group of Funds, which holds shares of Manulife and Sun Life.
"Obviously there will be continued credit writedowns and things related to the economy getting worse, but the big swing factor for all of these companies is the equity market (which has improved)," Graham said.
But the disappointing earnings sent Manulife and Sun Life shares sharply lower in afternoon trade in Toronto. Manulife shares were down 4.1 percent at C$21.80, while Sun Life traded 4.4 percent lower at C$28.63. Great-West stock was unchanged at C$22.89. The S&P/TSX financial index of banks, insurance companies and asset managers was down 2.1 percent.
Sun Life posted a first-quarter loss of C$213 million, or 38 Canadian cents a share, compared with a profit of C$533 million, or 93 Canadian cents a share, a year ago. Analysts had expected a loss of 19 Canadian cents a share.
Great-West said net income fell by a third to C$326 million, or 34.5 Canadian cents a share, in the first quarter from C$493 million, or 55.2 Canadian cents, a year earlier.
Analysts had expected earnings of 44 Canadian cents a share, according to Reuters Estimates.
While Canada's life insurers have outperformed U.S. peers since the start of the credit crunch last year, equity market exposure has hurt earnings and sales have suffered due to the weak economy.
Still, analysts generally consider the country's insurers to have enough capital to manage a difficult credit environment, and believe better things are ahead.
"The main cause of pressure on earnings and capital -- weak equities -- has reversed and the outlook for (the second-quarter of 2009) is much brighter," RBC Dominion Securities analyst Andre-Philippe Hardy said in a research note about Manulife's results.
Manulife said the quarter's loss was primarily driven by declines in U.S. and other equity markets. Reserve strengthening for segregated fund guarantees resulted in an accounting charge of C$1.15 billion. Credit impairments were C$121 million.
Also affecting earnings were fair value adjustments of C$277 million, primarily for declines in commercial real estate values, C$255 million of equity related charges and C$72 million related to credit downgrades, the company said.
Sun Life said its results were hit by reserve strengthening of C$325 million related to equity market declines, reserve increases of C$167 million for downgrades on the company's investment portfolio, and credit and equity impairments of C$34 million and C$42 million respectively.
All three companies said they are well-positioned financially to withstand further market declines, and pointed to growth in sales in a few sectors as evidence that business fundamentals are strong.
$1=$1.17 Canadian Reporting by Andrea Hopkins; Editing by Jeffrey Hodgson