China Life Insurance Company Ltd. (ADR) (LFC)

The world's most populous country also has one of the fastest-growing economies. That's great news for China Life Insurance. LFC delivered better-than-expected earnings over the first half of the year thanks to rising premiums and investment gains.

China Life credits the growing middle and wealthy class in China looking for life insurance and other types of coverage. But the company also invests much of its revenue in stocks. That side has taken off with the booming Chinese stock markets. Its written premiums and policy fees climbed 17% in the first half from a year ago to $8.4 billion. But its investment income climbed much faster. It grew 112% to $3.2 billion thanks to big surges in the Shanghai and Shenzhen stock markets.

China Life wants to be a banking player as well. Last year, it joined a consortium led by Citigroup that bought a 20% share in Guangdong Development Bank, a domestic lender. But insurance remains the core business. There, China Life dwarfs the competition. It had 47% of the Chinese insurance business in the first half of the year. Ping An had just 16%. The next competitor had 10%.

China Life relies on a network of 650,000 exclusive sales agents spread across the country. It has opened offices in each of the mainland provinces and is pushing into rural markets of the country, where much of the population still lives. Analysts say that huge network of dealers will allow the company to cross-sell its expanding offerings of insurance products.

It also is becoming a major institutional investor. Its investment assets grew to $101.5 billion by the end of June, up 29% from a year earlier.

The company has benefitted from the government's shifting of pensions to the private sector.
LFC posted the equivalent of 86 cents per American depository receipt in the June quarter, up from 31 cents a year ago. It reported $1.42 per ADR in 2006. Analysts surveyed by Thomson Financial expect $2.40 for this full current year.

But with about a quarter of its revenue tied to the surging Chinese stocks, there are obvious risks. China Life officials told analysts that market volatility will make it tough in coming quarters to match the investment yields of the first half. Those investment yields could get a surprise boost if interest rates rise.

Remember that the industry is heavily regulated in China. The government has a say in what China Life charges for its core life insurance products. While some regulatory reforms have opened markets, it's possible future government fiats could close doors.