Life insurer Legal & General said it should easily beat its full-year cash target, when reporting flat nine-month sales that were held back by weaker demand for annuities.

L&G shares were down 6.4 percent at 10:20 a.m. on Tuesday, as the wider European insurance sector <.SXIP>, a major investor in sovereign debt, fell sharply on fresh fears Greece might default after announcing a referendum on a bailout plan.

L&G's nine-month net cash generation rose 15 percent to 631 million pounds, putting it on course to comfortably beat its 2011 target of 700 million, the country's third-biggest insurer said.

The company has been at the forefront of an industry drive to boost cash generation by reducing commission payments to brokers and focussing on less capital-intensive products.

The strategy was designed to dispel investor worries about life insurers' ability to pay dividends after some, including L&G, were forced to cut their payouts to preserve capital during the 2008 financial crisis.

We are confident we can continue to grow from a position of strength whilst increasing our balance sheet strength and at the same time supporting a growing dividend, chief executive Tim Breedon said.

The underlying market reaction will probably be a bit of a shrug, said Investec analyst Kevin Ryan. It is a dull performance, but reasonable under the circumstances.

L&G had been widely expected to exceed its net cash generation target, first unveiled in March.

L&G also reported nine-month sales of 1.338 billion pounds, little changed from 1.347 billion pounds in the 2010 period, and broadly in line with the 1.33 billion pounds expected by analysts in a company poll.

A flat sales performance partly reflected an 8 percent fall in individual annuity business due to tax changes which triggered a one-off jump a year ago.

While L&G did not provide an estimate of its capital surplus at the end of September, Breedon told reporters the company did not foresee a significant difference from the 4 billion pounds it reported three months earlier.

L&G also said gross cash generation was on course to hit 900 million pounds by the end of the year after rising 17 percent to 736 million in the first nine months.

L&G shares, seen as insulated from the euro zone sovereign debt crisis due to the company's relatively low exposure to risky European government bonds, is still up 7.4 percent in the year to date against a 13.6 percent decline for the sector.

(Editing by Dan Lalor)