Dai-ichi Life Insurance rose 14 percent on its debut on Thursday after pricing its $11 billion IPO at a discount to rivals, but investors remain wary of its growth prospects outside a mature Japanese market.

The IPO was the world's largest since Visa Inc's $19.7 billion offering two years ago and was seen as a test of investor appetite in Japan, where the value of new listings slumped to their lowest in nearly two decades last year.

Dai-ichi opened at 160,000 yen ($1,712), against the IPO price of 140,000 yen. Nearly 151 billion yen worth of shares changed hands, accounting for 8 percent of turnover on the Tokyo Stock Exchange.

Trade in Dai-ichi shares was halted after the first price was set at 1:00 p.m. (0400 GMT) in a special measure taken by the stock exchange to ensure the massive listing went smoothly. Dai-ichi shares will trade regularly from Friday.

Dai-ichi drew strong demand as the stock was priced at a discount to rivals such as T&D Holdings as well as fortunate timing with Japanese shares hitting an 18-month high.

The stock is also sought after by index-tracking funds, which need it in their portfolios when it is added to the Topix index of all first section shares next month.

Dai-ichi shares look cheap from a valuation perspective and also attractive relative to T&D Holdings, said Takeshi Osawa, senior fund manager, at Norinchukin Zenkyoren Asset Management.

Overall market sentiment is improving and that's bolstering sentiment toward the financial sector, including insurers. The uptrend in Dai-ichi's stock should continue for a while.

Yet investors remained worried about Dai-ichi's growth prospects with its business so firmly based in Japan, where the population is shrinking and the value of new life insurance contracts has shrunk by three-quarters since a peak in 1991.

Dai-ichi, which went public after distributing its stock to 8 million policyholders in a process known as demutualization, did not raise any funds in the IPO, but is expected to issue new shares over the next few years to fund acquisitions overseas.

You know the nice thing about becoming a stock company is that we can discuss all kinds of possibilities, Koichiro Watanabe, a martial arts expert who became Dai-ichi's CEO on Thursday, told Reuters in an interview.

RISKS AHEAD

The first price values Dai-ichi at 1.6 trillion yen ($15 billion), where it trades at 64 percent of its embedded value, a common measure of an insurer's worth that includes the present value of future earnings from life insurance contracts.

By comparison, T&D Holdings trades at about two-thirds embedded value and Korea Life Insurance,, which debuted in Seoul last month, at about 110 percent.

This was pretty strong. But I think this rise was pretty much anticipated and, once the stock starts trading normally, there'll be profit-taking, said Nagayuki Yamagishi, strategist at Mitsubishi UFJ Securities.

About 2.9 million of the 10 million shares outstanding were in the hands of policyholders at the time of listing, while 5.01 million went to Japanese institutional and retail investors and 2.1 million were allocated to overseas funds.

The overseas portion was cut from an original target of 2.5 million, a sign demand overseas was not as strong as hoped.

Watanabe, who visited the United States and Europe to drum up interest in the offering, told a news conference on Thursday it was possible its business model was not yet fully understood by foreign investors.

Dai-ichi, which ranks behind Nippon Life Insurance Co in Japan, manages a massive stock and bond portfolio worth 29.4 trillion yen ($317 billion), leaving it vulnerable to swings in equity markets and Japanese government bonds.

The insurer has established several overseas subsidiaries but still generates nearly all of its sales in Japan.

You've got people who think there is fundamental value in this name, said Makarim Salman, an insurance industry analyst at Macquarie Securities in Tokyo who has an outperform rating and 175,000 yen target price on Dai-ichi Life.

On the flipside, you are going to have people who are going to take a very different view and highlight the fiscal anxieties surrounding government debt and the fact that life insurers are big holders of that, the structural decline in the life insurance industry, and a potential capital raising.

Managing the IPO propelled Nomura Holdings and Mizuho Securities to the top two spots in global undewriter rankings for January-March, according to Thomson Reuters data. Bank of America Merrill Lynch was also a bookrunner for the deal.

Japanese brokers are hoping Dai-ichi's strong debut will breathe life into the IPO market and help the Nikkei average, which rose 1.4 percent on Thursday to an 18-month high, keep gaining ground.

There are a lot of people that became owners of stock for the first time in this IPO. The fact that it went well could help revitalize the market, said Masayoshi Yano, a senior market analyst at Meiwa Securities.

($1=93.46 Yen)

(Additional reporting by Elaine Lies, Daiki Iga and Nathan Layne; Editing by Chris Gallagher, Edwina Gibbs and Ian Geoghegan)

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