UPDATE 3-Friends Q1 sales beat market expectations

(Adds further analyst, executive comments, shares)

By Simon Challis

LONDON, April 29 (Reuters) - Friends Provident (FP.L: Quote, Profile, Research, Stock Buzz), which rejected a takeover approach from U.S. buyout group J.C. Flowers this month, posted an 11 percent rise in first-quarter premiums on Tuesday, due to higher sales in its overseas units. Friends said it was making good progress on delivering its strategic review and that life and pensions new business totalled 247 million pounds ($490.3 million), on an annual premium equivalent basis, up from 223.2 million last year.

Analysts polled by the life insurer had on average forecast total life and pensions sales at just over 206 million pounds, in a range of 194.3 million to 223 million pounds.

Friends said its UK business saw sales dip 2 percent, hit by the impact of the weaker mortgage market on its protection business and by weaker savings sales, but the fall was more than offset by record quarterly sales at FPI, up 77 percent.

"The figures are strong, but the company also indicates that sales are going to slow down, so you can't extrapolate from the first quarter that this year will be good," said Raghu Hariharan, analyst at FPK.

The UK market remains tough, with new protection business down 12 percent, due to the slowdown in the housing market.

The protection market, one of Friends' core businesses, may fall by 10 to 15 percent this year, but could contract even more sharply if the UK housing market worsens, Benn Gun, the chief executive of its life and pension business told journalists.

It also expects its pension sales to fall this year, due to rising competition, its decision to end upfront commissions to win business and uncertainty over its future which has caused firms to shy away from it for their group pensions.