LONDON (Reuters) - Friends Provident (FP.L: Quote, Profile, Research) reported a 28 percent rise in third-quarter sales on Tuesday, towards the bottom of expectations, and said profit margins in key mortgage-related sales would stay squeezed.

"We have had a number of new entrants (in the mortgage-related protection market) and more aggressive actions by existing players. Pricing pressure for everybody will remain (into 2006)," Ben Gunn, Friends' head of life and pensions, told reporters on a conference call.

"But for ourselves, as we move into next year, we would expect the benefits of new distribution deals (for mortgage-related insurance) to come through, and that should give us the opportunity to grow market share."

Rounding off the life insurers' sales-reporting season, Friends Provident said revenues in the third quarter were 142 million pounds compared with 111 million pounds in the same period last year.

"They came in at the lower end of expectations, but that does not really matter. It's only one quarter of sales," said Roman Cizdyn, analyst at Oriel Securities, which has an "add" recommendation on the stock.

"The overseas revenues came exactly in line. In the UK, the drop in protection sales is a sign of the state of the market, and they have distribution deals coming on stream next year which should help."

At 10:05 a.m., Friends Provident shares were flat at 176-1/4 pence, in line with the DJ Stoxx European insurance index. The stock has gained 30 percent in the past 12 months, compared with a 26 percent rise in the index.

Third-quarter revenues were boosted by a 149 percent leap in overseas sales following Friends' acquisition of Lombard, an upmarket, Luxembourg-based life insurer, in January, and strong revenues in the Middle East and Asia from its offshore unit.

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