July 19, 2010 / 6:39 PM / in 8 years

Analysts cut Canadian insurer share-price targets

* Weaker stock markets, lower yields to hit earnings

* Manulife, Great-West downgraded, Sun Life target reduced

* Insurers to report results in late July, early August

TORONTO, July 19 (Reuters) - Analysts at two brokerages cut share-price targets for Canadian insurance companies on Monday, and predicted a gloomy second-quarter earnings period for them due to weak stock markets and lower interest rates.

TD Newcrest, a division of Toronto-Dominion Bank (TD.TO), cut targets for Canada’s top three insurers. It also downgraded its rating on the shares of Manulife Financial (MFC.TO) and Great-West Lifeco (GWO.TO), the two biggest players in the sector.

Canaccord Genuity also lowered targets for the big three. Sun Life Financial (SLF.TO) is the third member if the trio.

“(The second quarter) is going to be messy for Canadian life insurers,” TD analyst Doug Young said in a note.

“Falling equity markets and declining interest rates created the ‘perfect storm’ for lifeco business models,” he added.

Canadian insurers hold billions in equity assets that lose value when markets fall. As well, declining interest rates keep them from reinvesting long-term debt holdings at higher returns.

The Toronto Stock Exchange composite index .GSPTSE fell more than 6 percent in the April-June quarter, while bond yields declined sharply. Both have rebounded a bit since the end of June, which Young said was reason for optimism about the third quarter.

Young cut its rating on Manulife to “hold” from “buy” and chopped his price target on the company stock to C$18 from C$25, predicting a second-quarter loss of 95 Canadian cents a share for the company, considerably weaker than current consensus expectations for a loss of 30 Canadian cents, according to Thomson Reuters I/B/E/S.

He also lowered Great-West to “hold” from “buy”, and reduced his target on the company to C$27 from C$31. He cut his target on Sun Life to C$35 from C$37 a share.

Shares of Manulife and Sun Life were down 3.1 percent and 2.3 percent, respectively, the two weakest performers in the TSX financials subgroup at mid-afternoon on Monday.

Canaccord Genuity analyst Mario Mendonca lowered his target on Manulife to C$18 from C$21, predicting it will take a C$1 billion charge due to weaker stock markets and a C$300 million hit from weaker long-term corporate bond yields.

He trimmed his Sun Life target to C$34 from C$35, reduced Great-West to C$28 from C$29, and lowered his target on No. 4 insurer Industrial Alliance (IAG.TO) to C$38 a share from C$39.

The target reductions follow a similar move by CIBC World Markets — a division of Canadian Imperial Bank of Commerce (CM.TO) — two weeks ago.

Manulife shares were down 48 Canadian cents at C$14.81 on in Toronto on Monday afternoon. Sun Life was down 63 Canadian cents at C$26.84, and Great-West was down 20 Canadian cents, or 0.8 percent, at C$24.30. Industrial Alliance was down 42 Canadian cents at C$32.01.

The insurers will report second quarter results in late July and early August.

$1=$1.06 Canadian Reporting by Cameron French; editing by Peter Galloway

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