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 new distribution deals should improve flagging mortgage-related sales next year.

"We see little improvement in the mortgage market but would expect many of our new protection-focused distribution deals to have a positive impact through 2006," the insurer's head of life and pensions, Ben Gunn, said in a statement.

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.

Friends Provident shares were down 0.7 percent in early trade at 175 pence, while the DJ Stoxx European insurance index was down 0.3 percent. The stock has gained 30 percent in the past 12 months, compared to a 26 percent rise in the index.

"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."

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.

Friends said changes in the geographic mix of its products could modestly reduce its overseas margins but it said it expected Lombard's traditionally strong fourth quarter to outperform the same period last year.

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