China Life has more bad news for shareholders,
this time a warning that its attributable profit for 2011 will be
down between 40% and 50%.

The warning from China’s largest life insurer
indicates that it had a very tough second half and will follow a
21.8% decline in its attributable profit in the first half of 2011
to CNY12.96bn ($2.05bn).

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Taken in the middle of China Life’s expected
profit decline – 45% – its attributable profit in 2011 will come in
at about CNY18.5bn.

This will be the lowest level since 2008 when
it reported a 51% decline in attributable profit to CNY19.14bn
following a slump in investment returns.

In its profit warning, China Life stated that
the primary causes of the profit setback are a decline in
investment yields and impairment losses.

China Life barchart

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The yield on Chinese government 10-year bonds
declined from 4.2% in July 2011 to 3.5% at year-end. Based on the
Shanghai Composite Index, China’s equity market declined by 22%
during 2011.

China Life also appears to have fared poorly
in terms of premium income in 2011 having fallen 6.2% in the third
quarter compared to the life industry’s 13% rise.

Ping An outlook

China Life’s closest rival, Ping An appears
set to deliver reasonable results in 2011 unless it suffered a
severe setback in the fourth quarter of 2011.

In the first three quarters of 2011 Ping An
reported an attributable profit of CNY16.5bn, up 29.1% on the same
period in 2010.

This excluded a CNY1.95bn charge related to
the consolidation of its 52.4% stake in Shenzhen Development
Bank.