* Q1 net profit 7.97 bln yuan vs 10.2 bln year a ago
* Q1 EPS 0.28 yuan vs 0.36 in Q1 2010
* Analysts expected Q1 profit to be flat
* China Life suffers from sluggish stock market (Updates with confirmation)
By Samuel Shen and Kazunori Takada
SHANGHAI, April 25 (Reuters) - China Life, the world's biggest life insurer by market value, reported a worse-than-expected 22 percent fall in first-quarter profit on lower investment returns.
Confirming what a source had told Reuters earlier, the insurer said its January-March net profit fell to 7.97 billion yuan ($1.2 billion) compared with 10.2 billion yuan a year earlier.
It was the biggest fall in profit since the second quarter last year when earnings fell 27 percent.
Two analysts contacted by Reuters had expected little change in China Life's first-quarter profit.
China Life and rivals such as Ping An Insurance and China Pacific Insurance (Group) Co Ltd are suffering from a sluggish stock market as China has taken a slew of measures to tame inflation, although higher interest rates help improve returns from bond investment.
"China Life faces uncertainty in its stock market investment, and growth in its premium income is slowing partly due to a slowing economy," said Qiu Peng, analyst at Western Securities, who forecast a 15 percent increase in the insurer's 2011 net profit.
China Life's gross investment yield during the first quarter was 1.11 percent, representing an annualized return of 4.5 percent, the company said in its quarterly report late on Monday.
Last month, China Life forecast that premiums may rise more than 10 percent this year and investment yields would climb as interest rates are set to rise further.
China Life shares have fallen 6.6 percent in Hong Kong so far this year versus a 4.8 percent rise in the benchmark Hang Seng Index. The Hong Kong stock market was closed on Monday for a public holiday.
China Life also faces an increasingly crowded insurance market as the country's biggest banks are making a foray into the business to compete for market share.
Chairman Yang Chao said last month that China Life's solvency margin ratio, a closely watched measure of financial health for life insurers, remained healthy at 212 percent, so the company has no fundraising plans.
($1 = 6.494 Chinese Renminbis)
(Editing by Erica Billingham)