* Manulife Q4 share loss C$1.24; first quarterly loss ever
* Sun Life operating share loss C$1.25 before gain on sale
* Great-West Q4 shr loss C$1.011 on Putnam charges
* Hit by market-related writedowns, need to raise reserves
* Sun Life debt ratings cut, Manulife on watch (Adds conference call comments, closing share prices)
By Ka Yan Ng and Jeffrey Hodgson
TORONTO, Feb 12 (Reuters) - Canada's three largest insurers reported weaker quarterly results on Thursday after taking hits from ailing capital markets, writedowns and the need to shore up reserves.
Manulife Financial Corp (MFC.TO), Canada's largest insurer, posted its first quarterly loss ever, which came in deeper than the company had anticipated. [ID:nN12442902]
The country's No. 2 player, Great West Lifeco (GWO.TO) also reported a steep quarterly loss as it took more than C$1.4 billion ($1.1 billion) in charges related to its Boston-based Putnam money management unit. [ID:nN12301485]
Sun Life Financial Inc (SLF.TO) reported a nearly 77 percent drop in quarterly profit on damage from deteriorating capital markets. It would have posted a loss if not for a one-time gain from an asset sale. [ID:nBNG408692]
Manulife closed down 6 percent and Great-West fell almost 2 percent on the Toronto Stock Exchange. Sun Life closed up 0.65 percent after spending much of the session lower.
"They're a product of their environment right now. They're heavily invested in equity markets and they're heavily invested in the credit markets, and both of those markets are pretty abysmal," said Craig Fehr, financial services equity analyst Edward Jones.
"Just think about the three months that Q4 spanned -- they were three pretty bad months in the market in general and ... insurance companies, particularly the Canadian lifecos, are going to trade almost as derivatives of the equity markets."
Manulife pointed to more than 20 percent drops in stocks listed on the Toronto Stock Exchange, the S&P 500, Hang Seng and Nikkei 225 during the fourth quarter when the global financial crisis intensified, putting enormous pressure on its results.
The market downturn has hit insurers hard, in part, because their large portfolios of segregated funds are tied to equity market returns, often with guaranteed minimum payments, Fehr said. When markets decline, companies must put cash into a reserve funds to meet their liabilities.
This kind of strain prompted credit ratings agency Moody's to put Manulife's "Aa1" insurance financial strength rating on review for downgrade.
"Because Manulife's financial flexibility is no longer excellent and is just strong, that factor tends to provoke the review for downgrade," said Peter Routledge, a senior credit officer at Moody's.
Even so, Manulife Chief Executive Dominic D'Alessandro told analysts on a conference call that the insurer is open to acquisition opportunities, but would be "judicious" and it could only do deals that would not compromise capital levels.
Moody's downgraded the credit ratings of Sun Life and the insurance financial strength ratings of its operating companies to "Aa3" from "Aa2," largely because of the credit profile of Sun Life's U.S. subsidiary.
Despite "very disappointing" financial returns, Sun Life said its sturdy balance sheet that will provide stability in the year ahead as it faces a "significant headwind" from poor credit conditions.
"It appears likely that the turbulence of 2008 will continue and may extend well into 2010," Chief Executive Don Stewart said in a conference call.
Great-West, which has raised its dividend every six months for several years, opted to keep it steady partly because of the uncertain environment, Chief Executive Allen Loney told analysts.
"I believe these results demonstrate that we have come through in excellent shape. Having said that, I think none of us are sanguine at all about what markets may hold for us in the future," he said.
$1=$1.25 Canadian With additional reporting by Susan Taylor in Ottawa; editing by Rob Wilson