China Life Says 2012 Profit May Fall 40% on Market Slide

China Life Insurance Co., the nation’s biggest insurer, said profit probably fell about 40 percent last year on lower investment yields and increased impairment losses because of weakness in capital markets. Shares dropped.

Net income was 18.3 billion yuan ($2.9 billion) for 2011, the Beijing-based company said in a statement to the Hong Kong stock exchange yesterday. The insurer in October reported its first quarterly loss since 2008, at 2.2 billion yuan. Profit for the first nine months of 2012 was 7.4 billion yuan, down 56 percent from the same period a year earlier.

“That’s in line with market expectations as they already reported a big profit decline for the first three quarters,” said Olive Xia, a Shanghai-based analyst at Core Pacific-Yamaichi International Ltd. “The mark-to-market gains in equity holdings in the fourth quarter can’t yet be booked as income due to accounting rules, but the first quarter this year should look better as they’ll have opportunities to reduce positions” and lock in profit, she said.

The benchmark Shanghai Composite Index slid 5.2 percent in the first nine months of 2012, eroding the value of insurers’ stock holdings, as China’s economic expansion slowed. China Life booked 29 billion yuan in impairment losses for that period, an almost fivefold gain from a year earlier. The equity gauge rebounded 8.8 percent in the fourth quarter and 4.3 percent so far this year amid signs of an acceleration in economic growth.

China Life declined 1.7 percent to HK$22.90 as of 9:36 a.m. in Hong Kong trading, while the benchmark Hang Seng Index fell 0.2 percent. The shares are down 8.7 percent this year, while the Hang Seng Index is up 1.4 percent.