HONG KONG (Reuters) - China Life Insurance Co (2628.HK: Quote, Profile, Research), China's largest life underwriter, posted a 42 percent gain in second-half profit on strong investment returns, topping analysts' expectations, but said it faces a more turbulent market environment in 2008.Investment returns at China Life (601628.SS: Quote, Profile, Research) (LFC.N: Quote, Profile, Research), which leads rival Ping An Insurance (Group) Co (2318.HK: Quote, Profile, Research) (601318.SS: Quote, Profile, Research), benefited from a near doubling in China's benchmark domestic share index last year, but stock markets have tumbled since peaking in October.
"In 2008, the company will face further challenges in view of the keen competition in the insurance industry and the uncertainty of the capital markets," Chairman Yang Chao said in a statement.
Shanghai's stock market, on which China Life depends for a sizeable portion of its investment income, has dived more than 30 percent since the start of the year on expectations of slowing income growth and rising interest rates to combat inflation.
The company earned 15.6 billion yuan ($2.21 billion) in the second half, compared to 10.99 yuan in the year earlier period. A poll of 21 analysts had forecast a profit of 14.1 billion yuan in the second half of 2007, according to Reuters Estimates.
China's life insurance market, dominated by China Life and Ping An, has grown dramatically as Beijing dismantles a cradle-to-grave welfare system, although the rate of premium growth is slowing.
On the strength of China's local A-share market, China Life racked up 44.02 billion yuan in net investment income for 2007, up 76.5 percent from 2006 and its net investment yield rose 1.49 percentage points to 5.76 percent.
The Shanghai benchmark index .SSEC rose 97 percent last year, boosting profits at China Life, which invests in publicly traded companies. The index hit a record high in mid-October before retreating amid the global selloff.
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