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China Life Insurance, the country's largest life insurer, registered a 95 percent growth in its 2007 net profits, bringing in 38.9 billion yuan, thanks to soaring premium and investment gains.

But analysts say the industry leader is facing a difficult 2008 in the wake of a downtrodden stock market and weaker premium growths.

A traveler walks past an advertisement for China Life Insurance at Beijing International Airport. AFP

The company - closely chased by rivals Ping An Insurance and China Pacific Insurance - posted a 12.5 percent growth in its revenue last year to 191 billion yuan. And revenue from insurance business jumped 12 percent to more than 111 billion yuan.

Contributing to the bulk of its bottom-line growth was investment income, mostly from the A-share market. The investment gain rose 77 percent to 44 billion yuan.

In the past few years, China Life basked in the booming yuan-denominated A-share market by aggressively subscribing to initial public offering (IPOs) and frequently selling high-return stocks.

"It's more like an investor than an insurer," said Dick Lee, a corporate finance officer with Phillip Securities.

The mainland's benchmark Shanghai Composite Index grew 96.7 percent in 2007, lifting banks, brokers and other firms with large stock investments.

But a market correction since the last quarter of 2007 has already eaten away at China Life's profits, as a quarter-on-quarter slowdown was recorded.

"The situation will only worsen this year," Lee said.

The Shanghai market nosedived to 3,626.188 on Monday, its lowest close since July 5 last year. A combination of factors - including colossal fundraising activities, tightening economic policies, hovering commodity prices and a global economic slowdown - have dampened market sentiment.

But aside from the effect of market woes, China Life looks to face a turbulent year. Its old short-term insurance policies will reach maturity this year, Citigroup said in a research reported dated Feb 27.

Its dominance over its rivals is diminishing, too. China Life had a 40 percent share of the mainland's life-insurance market by the end of 2007, down from 45.3 percent a year earlier.

So, it "will have to look elsewhere to continue diversifying investments in pursuit of higher returns", Citigroup's report said.

Overseas venture

An expert in making strategic and financial investments in high-quality Chinese firms, China Life confirmed on Monday that it has made its first foreign investment by buying $300 million worth of shares in the IPO of Visa, the United States' credit card firm.

The investment has given China Life a 100 percent return, on paper, based on Visa's closing price yesterday.

Analysts said the move marks the beginning of China Life's foreign foray, as it tries to catch up with Ping An in securing fresh profits outside China.

Ping An is an active international deal maker, and its latest attempt was to acquire half of global asset investment firm Fortis Investments for $3.37 billion.

China Life Chairman Yang Chao said earlier this month that the company intends to invest overseas, and he said the opportunity for that begins in the second quarter of this year.

Western companies - particularly banks and brokers - are now struggling to enrich their liquidity, as loss-making subprime-linked investments drain their cash reserves. This has provided opportunities for cash-rich Chinese financial houses to hunt for bargains.

H-shares of China Life, which also trades its shares in Shanghai, surged 9.15 percent to HK$27.40 yesterday as investors bargain hunted for large-caps battered last week.

But China Life, which accounts for 4.1 percent of the Hang Seng Index, is "an easy target for investors" to sell if the Shanghai and Hong Kong markets go down, the Citigroup report said.

Citing weakening A-shares and global markets, the firm's slower-than-its-peers' diversification efforts and possible waning premium growth, the investment bank trimmed China Life's H-share target price from HK$46 to HK$34.30, but kept its "hold" recommendation.

(HK Edition 03/26/2008 page2)