HONG KONG China Life (601628.SS) (2628.HK), the world's largest insurer by market value, warned on Wednesday that its nine-month net profit could drop by 55 percent due to a fall in investment yield and higher impairment losses from continued weakness in the capital market.
Chinese insurers, which are allowed to invest up to 20 percent of their assets in domestic stocks, are suffering from low investment returns and asset depreciation as the main stock index has dropped around 4 percent this year after slumping 22 percent in 2011.
They're also feeling the impact of tepid premium growth as a slowing economy saps demand for insurance coverage.
Unlike its main rival Ping An (601318.SS) (2318.HK), which has diversified into banking and asset management, China Life is highly vulnerable to a volatile stock market.
Chinese brokerage Shenyin Wanguo Securities Co has forecast that Ping An would post a 20 percent rise in net profit during the first nine months of the year.
By contrast, China Life has issued profit warnings for previous periods and in August posted its seventh consecutive decline in quarterly profit. Chairman Yang Mingsheng also said in August he did not expect investment yields to improve in the second half.
China Life, which has a market capitalization of more than $83 billion and is majority-owned by the Chinese government, posted a full-year 2011 profit that was down 45.5 percent year-on-year. It is due to report 2012 nine-month results later this month.
The statement on Wednesday did not specify which assets had been impaired.
The Shanghai-listed shares of China Life have risen about 1 percent from the beginning of the year. The company's Hong Kong-listed shares have risen about 15 percent. Ping An's Hong Kong shares are up about 18 percent so far this year. (Reporting by Clare Baldwin in HONG KONG and Samuel Shen in SHANGHAI; Editing by Muralikumar Anantharaman)