A recovering housing market and changes to pensions rules has helped British insurer Legal & General continue its strong profits run into the first quarter.

Britain's third-largest life insurer, Legal & General today beat City forecasts for the second time in a row to report a 28 per cent increase in new UK business to £363 million for the first quarter.

Most analysts had been expecting sales growth of just short of 10 per cent over the first three months of the year.

Today's forecast beating figures come just over a month after L&G, led by new chief executive Tim Breedon, impressed the City with a 43 per cent surge in annual operating profits to more than £1 billion.

At the time Mr Breedon hailed the rebounding interest in life insurance and the pensions market, particularly ahead of new "A-Day" rules that came into force at the beginning of April.

Today, the L&G boss again boasted that the insurer was benefiting from the protection, savings and investment markets, adding that "further signs of recovery" in the housing market were also resulting in increased sales of mortgage-linked financial products.

"We saw good performance in retail protection sales as the housing market showed further signs of recovery. There was increased activity in the retail pensions market, with customers and advisers preparing for changes in pensions legislation," Mr Breedon said.

"Our investment bond business rose 39 per cent with intermediaries taking advantage of the opportunities available to them and to their customers ... In retail investments, ISA and unit trust sales saw impressive growth, as consumers drew confidence from improved equity markets."

As well as strong growth in the UK, worldwide new business at L&G rose by 27 per cent to £390 million.

"This is a strong start to the year. We remain confident in our ability to continue delivering profitable growth," Mr Breedon added.

The insurer increased sales in every market area except single annuities which, at £56 million, were 68 per cent lower than the first quarter last year and 23 per cent down on the fourth quarter.

However, with sales of bulk annuities - a growth area for L&G - rising by 5 per cent to £277 million, and the margins on offer in single annuities wafer thin, the insurer said: "We remain comfortable seeing a lower market share while the available returns do not meet our profit requirements."

Greig Paterson, UK insurance analyst at Keefe, Bruyette & Woods, described L&G's worldwide sales as "ahead of expectations".

He added that: "KBW had expected Legal & General to have been more aggressive in the pension bulk annuity market in the quarter; however, despite this, it appears that the company gained market share from Prudential. It does not appear that bulk annuity sales were too negatively impacted by lower average interest rates in the quarter.

Mr Paterson said he expected aspects of the insurer's results to have a positive effect on insurance rivals such as Aviva and Friends Provident.

Analysts at Dresdner Kleinwort Wasserstein, who described the insurer's shares in inexpensive, said: "It seems 2006 is set to be a profitable year for the group and management is confident it can exploit the opportunities in the UK market."

Shares in L&G closed last night at 141.5p, valuing the insurer at just over £9.2 billion.

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