(Adds comments from Sun Life CEO, updates share prices) TORONTO, May 6 (Reuters) - Manulife Financial Corp MFC.TO shares dropped by the most since June on Thursday after Canada’s biggest life insurer posted a large fall in reported net income the previous day driven by the negative impact of a steepening yield curve. The 80-basis-point steepening in the yield curve was “unusual,” and the most since the company instituted its hedging program in 2012, Chief Financial Officer Phil Witherington said on an analyst call. But this could be reversed if interest rates rise, he said. “If the steepening of the yield curve reverses, and rates at shorter end increase, giving rise to a flattening, the direct market impact charges we’ve seen in the first quarter would reverse,” he said. Its shares dropped 3.6% to C$26.21 in Toronto, versus a 0.3% decline in the stock benchmark. Manulife “is way more sensitive to interest rates than Sun Life” due to a sizeable annuities business, Marcos Alvarez, head of insurance at DBRS Morningstar said. “They’ve done a lot of improvement in terms of hedging the volatility and exposure... but it’s not perfect.” A 50 basis-point rate increase would lead to a rise of C$1.8 billion in the current value of future earnings, Witherington said. Sun Life Financial, which, in contrast, reported net profit that more than doubled, expects the pandemic-related death claims across North America to fall after paying out C$150 million ($123 million) for deaths in the first quarter, its chief executive said on Thursday. It paid C$200 million throughout 2020. “As people become inoculated and maybe even achieve herd immunity, we should see a reduction in mortality claims, but there will be ebbs and flows,” Sun Life CEO Dean Connor said in an interview. But “there is going to be a backlog of (health) claims related to cancer and other conditions.” Sun Life shares fell 1.8% to C$65.91. With C$2.3 billion of excess capital, Sun Life is still seeking acquisitions, following an agreement last month to buy U.S. medical intelligence provider Pinnacle Care International. “It’s a continuation of the path you’ve seen us on,” Connor said. These include adding scale in its U.S. businesses, and in Asia, new bank partnerships, adding capabilities in existing markets and bigger shares of business it already owns, he said. ($1 = 1.2186 Canadian dollars) (Reporting By Nichola Saminather Editing by Chizu Nomiyama, Steve Orlofsky and Marguerita Choy) Our Standards: The Thomson Reuters Trust Principles.