China Life Insurance Co, the world's largest life insurer by market value, posted a 42 percent drop in fourth-quarter net profit on a slump in the stock market and a large number of claims due to disasters.
Analysts foresee improved profits this year, however, with a pick-up in the stock market expected to bolster investment returns.
"The worst days for Chinese insurers are over," said Pan Hongwen, analyst at Haitong Securities Co. "Insurers' earnings are very much correlated with the domestic stock market performance, and I expect to see a market recovery this year."
China Life's fourth-quarter net profit fell to 8.17 billion yuan ($1.20 billion) from 14.2 billion yuan a year earlier, the company said on Wednesday. The results were calculated by subtracting nine-month results from full-year figures.
China Life and smaller rival China Ping An Insurance (Group) Co suffered from a collapse in investment returns last year as the country's benchmark Shanghai Composite Index tumbled nearly 70 percent.
China Life also said the Sichuan earthquake and major snow storms last year resulted in a large number of claims.
For the full year in 2008, China Life's net profit dropped 45 percent to 21.3 billion yuan, from 38.9 billion in 2007.
China Life warned in January that profit may fall more than 50 percent in 2008, after almost doubling in 2007.
Its shares fell 17.5 percent in the last quarter of 2008, compared with a 13 percent loss on the index for major Chinese mainland companies listed in Hong Kong.
On Wednesday, China Life shares fell 1.74 percent in Hong Kong before the earnings were released. The stock has gained 7.6 percent this year, compared with a 5.7 percent loss in the benchmark Hang Seng Index, on optimism that investment returns will improve as the domestic stock market stabilises.
China Life invests about 14 percent of its assets in equities and about 60 percent in fixed-income products.
Chinese stocks have rebounded 24 percent this year, fuelled by the government's 4 trillion yuan stimulus plan, monetary easing policies and signs of an economic recovery.
However, China Life and other domestic insurers face pressure on their bond investments, after China's five rate cuts in the second half of last year pushed down fixed-income yields, analysts have said.