* Q1 sales up 12 pct to 433 mln sterling vs 442 mln consensus
* Annuities sales down 43 pct on lower bulk sales
* Cash generation up 18 pct, on course to beat FY target
* Shares down 2.8 pct, lag FTSE, European sector
(Adds CFO comment, analyst reaction, shares)
By Myles Neligan
LONDON, May 4 (Reuters) - British insurer Legal & General narrowly missed sales forecasts for the first quarter, held back by a weak annuities market, and said it was on course to beat its 2011 cash generation target.
L&G had total sales of 433 million pounds ($713.1 million) in the first quarter, an increase of 12 percent on the same period last year, Britain's fourth-biggest life insurer said on Wednesday.
Analysts had expected sales of 442 million pounds, according to a consensus analyst forecast calculated by the company.
The decline reflected a weaker performance in annuities, with total sales down 43 percent as L&G sold fewer bulk annuities to companies seeking to fund their staff pensions.
Annuity sales to individuals also fell, following a one-off surge a year ago triggered by an increase in the minimum retirement age that took effect in April 2010.
"This is a pretty good set of numbers, but they're running into profit-taking on a relatively weak day for the market," said Berenberg Bank analyst Trevor Moss.
L&G shares were down 2.8 percent at 121 pence by 0905 GMT, underperforming a 0.2 percent drop in the FTSE 100 and lagging the STOXX Europe 600 sector index, which was 0.1 percent lower.
Prior to Wednesday's statement, the stock had risen 28 percent since the start of 2011 to a three-year high, making it one of Europe's best-performing insurers in the year to date.
CASH TARGET
L&G said its net cash generation rose 18 percent to 212 million pounds over the first three months of the year, putting it on track to beat its target of 700 million pounds for the year as a whole.
L&G and its rivals have been emphasising their ability to generate cash while simplifying their financial statements in an effort to combat investor perceptions that life insurers are opaque and excessively capital-consumptive.
L&G had already been widely expected to outstrip its cash generation target for 2011, which is below the 728 million pounds it achieved last year.
"We (and we expect investors will) question whether the current 2011 net cash target is sufficiently challenging/relevant," Barclays Capital analyst Toby Langley wrote in a note.
L&G finance director Nigel Wilson reiterated that the insurer's healthy cash position gave it scope for big dividend increases.
"We remain very confident about our ability to deliver very strong dividend growth for our shareholders," he told reporters on a conference call.
L&G's three most recent shareholder payouts have risen 25 percent, 20 percent and 33 percent respectively. These followed two dividend cuts in 2008 and 2009 aimed at conserving capital during the financial crisis. (Editing by Jane Merriman)