China Life Insurance warned yesterday that net profit for last year would come in about 40 per cent lower than a year earlier.
That would be about 11 billion yuan (HK$13.7 billion), since the company reported a net profit of 18.33 billion yuan for 2011.
Thirty investment banks surveyed by Bloomberg had an average estimate of 14.56 billion yuan.
China Life, the world's biggest insurer by market value, blamed a drop in investment yield and an increase in impairment losses as the value of its investments fell because of continued weakness in the capital markets.
The mainland-based company reported net profit of 7.42 billion yuan for the first nine months of last year and a net loss of 2.2 billion yuan for the third quarter. It also posted a profit warning before the third-quarter results.
Based on the estimated full-year result, China Life achieved positive earnings of 3.57 billion yuan for the fourth quarter.
The earnings of an insurance company depend greatly on the performance of its investments. The Shanghai Composite Index fell from February last year until December. As a result, some insurance firms suffered significant investment losses.
Kenneth Yue, an analyst at CCB International, said he had expected better performance from China Life in the fourth quarter, given the strong rebound in the stock market. The benchmark rose 16.1 per cent in December.
"We estimated the company made good investment gains in the fourth quarter. Now the full-year results have missed our estimate," Yue said. "Something must have gone wrong."
China Life reported earlier that premium income in January was about 46.8 billion yuan, 41 per cent less than in the same month last year.
Some of its competitors also experienced a drop in premium income in January.
"The insurance industry is facing harsh competition with banks," Yu said.
"Short-term wealth management products in banks are offering a yield that is higher than investors can get from insurance products."
China Life also warned investors yesterday to exercise caution when dealing in the company's shares.
The stock closed 2.4 per cent higher at HK$23.30.