Nation’s Biggest Life Insurer Says Profits Plunged Last Year on Weak Stock Market

China Life Insurance Co. Ltd. saw shares slump on Wednesday morning after it said last year's profits may have fallen as much as 70% due to weak returns on equity investments.

Shares in the insurer dropped as much as 4.32% in Shanghai after the market opened, with losses narrowing to around 1.6% by the noon break. China Life’s Hong Kong-listed shares also suffered declines, losing about 4.3% before closing down 2.28% in the morning session.

The country’s largest life insurer by market share said it expects a plunge of 16.13 billion yuan ($2.4 billion) to 22.58 billion yuan in unaudited net profits last year, due to weak returns on investments in equities, which is equivalent to a 50% to 70% drop in net profit year-on-year, according to a Tuesday company statement filed to Shanghai Stock Exchange. The insurer’s net profit was 32.25 billion yuan in 2017.

Under Chinese mainland regulations, a listed company which predicts its annual profits will fall more than 50% must release their earnings forecast before Jan. 30.

Chinese stocks were deep in a bear market in 2018, with the benchmark Shanghai Composite Index declining by 24.6% over the course of the year, in the wake of a cooling economy, downbeat sentiment, China-U.S. trade frictions, rising numbers of private enterprise defaults and a rush of margin calls on pledged shares.

China Life’s plunging earnings also hint at the aftermath of the across-the-board market sell-off, which is starting to weigh on the performance of some key financial market participants. Through its controlling shareholding in China Life Insurance Assets Management Co. Ltd., China Life is one of the largest institutional investors in China.

In response to investors’ worries that China Life might dump its shares as the market declines, the company promised at an investor disclosure platform backed by the stock exchange last November that it has kept its position in the equity market relatively stable as a long-term investor.

According to a Tuesday statement by the China Banking and Insurance Regulatory Commission, insurance companies will be encouraged to invest in high-quality stocks and specialized equity-investment products as part of the government’s efforts to bolster liquidity and revitalize gloomy capital markets.

Contact reporter Leng Cheng (chengleng@caixin.com)