Life insurance in China should be a neat investment proxy for some of the country’s biggest structural changes – an ageing population, rising wealth, poor state welfare. But China Life, the world’s biggest insurer by market capitalisation ($77bn), has warned that 2011 profits may fall by as much as half, sending its share price tumbling 6 per cent.

The profit warning is not entirely surprising. The financial market turmoil of last year may well have hurt China Life more than it hurt its rivals. The company’s terse announcement blamed lower yields and higher impairments from the capital markets for the decline in profit. But investors must wait for China Life’s annual results on March 27 for a clearer picture.

Like its peers, China Life’s biggest source of revenue comes from savings products, not pure insurance. This makes it vulnerable to competition from China’s booming wealth management sector. Its third-quarter report showed that the number of customers surrendering their products jumped by half from a year earlier as they sought higher returns elsewhere. China Life’s particular focus on lower-margin, short-term products has an effect: the margin it makes on the value of new business is a fifth lower than at Ping An, its closest rival.