Korea Life Insurance Co <088350.KS> shares closed up 8 percent in heavy trading on their debut on Wednesday, signaling keen demand ahead of bigger rival Samsung Life's planned $4 billion IPO in May.

Korea Life had priced its $1.6 billion IPO, South Korea's biggest in four years, below market expectations as it sought to keep investors interested ahead of the Samsung Life offering and next month's $12 billion IPO from Japan's Dai-ichi Mutual Life.

The strong debut bodes well for the bigger IPO by Samsung Life because investors will increase their bets that it deserves better pricing and valuation than its smaller peer, said Park Yoon-yeong, an analyst at HMC Investment & Securities.

Korea Life shares closed at 8,850 won, up from its 8,200 won IPO price -- which had been set well below the bottom of a target range. The shares had risen as much as 11.3 percent in a broader market <.KS11> that closed up 2.1 percent.

Trading volume in Korea Life hit 65 million shares, worth 580 billion won ($511 million), putting it ahead of market leader Samsung Electronics <005930.KS>.

Korea Life, whose 7.7 trillion won market value ranks it among South Korea's top-30 listed companies, appeared to benefit from pricing its IPO cheaply. Analysts said this had offered an upside and boosted demand.

Unlisted Samsung Life, which last week won approval for an initial public offering of at least $4 billion, saw its shares gain 4 percent in a week to 120,000 won each in over-the-counter trade, according to broking website Presdaq. Before a 1-for-10 stock split aimed at spurring trading, the stock had traded at over 1.5 million won in late January.

Dai-ichi Mutual last week set a price range for what should be Japan's biggest IPO in 12 years and the world's largest since credit card firm Visa Inc's $19.7 billion offer in 2008.

Gains in Korea Life shares raise hopes for Samsung Life, which deserves a better premium because of its brand power and (market) leading position, said Choi Jong-hyeok, a fund manager at Midas Asset Management.

Strong trading in Korea Life today is undoubtedly positive for Samsung Life's pricing. However, Korea Life shares traded well because the final IPO price was below the indicative range, said another fund manager who declined to be named.

Pricing is key. Good pricing will draw good demand.

Other recently listed Asian life insurers have had mixed fortunes. China Pacific Insurance <2601.HK> has risen 13 percent from its Hong Kong IPO in December, but Korean rival Tong Yang Life <082640.KS> has fallen by more than a fifth since its IPO in October.

We see Korea Life trading at around 9,000 won in the near term, said Sung Yong-hoon, a Shinhan Investment Corp analyst. There's not much downside to these shares, (though) not much upside either, as profitability is steady.

SOLID OUTLOOK

South Korea's insurance market, Asia's third largest after Japan and China, is set for a recovery this year with corporate pension moves that will unlock massive retirement savings.

Following the IPO, Korea Life, run by former Samsung Life veteran Shin Eun-chul, is set to become a main pillar in conglomerate parent Hanwha Group's drive to raise its profile in the financial sector.

Hanwha Securities <003530.KS> last month bought two local units of Prudential Financial
for about $425 million.

Hanwha has a big plan for its financial business and has brokerage, insurance and asset management businesses in place. It can become a major player in the next few years, said Shim Kyu-sun, analyst at HI Investment & Securities.

Korea's top three life insurers -- Samsung Life, Korea Life and Kyobo -- control more than half the $66 billion local life insurance market, but face increasing competition from foreign rivals such as ING , Allianz and AIA as well as from local banks that sell insurance products.

Growth is returning to the life insurance market, but only slowly, said Shim. I expect about 5 percent growth this year, he said, noting premium growth of more than 10 percent in 2005-2007. ($1=1134.0 Won)

(Additional reporting by Miyoung Kim; Editing by Jonathan Hopfner and Ian Geoghegan)