Indexed annuity sales set a new high watermark in the third quarter, up 6% to $8.7 billion from the second quarter, a 16% growth year over year. Indexed annuities now represent 41% of the fixed annuity market.

From a market share perspective, the highest indexed annuities have been as a proportion of fixed annuity sales was 37% in the second quarter of 2007, said Joe Montminy, assistant vice president of LIMRA’s annuity research arm. “This is an ideal environment for indexed annuity sales,” he said. “Volatility in the equity market combined with a low interest-rate environment means that conservative investors looking for guarantees are not going to traditional fixed products, they’re turning to indexed annuities for their fixed benefits plus upside potential.”

At 84% of the market, independents sell most indexed annuities. But to get a snapshot of the conservative investor, bank sales of indexed annuities doubled to $2.1 billion in 2009 from 2008 and are likely to equal or beat that performance this year, Montminy predicts.

Total annuity sales in the first nine months of this year, $164.5 billion, were 11% lower than last year, hurt by declining demand for fixed annuities after a record year last year. Fixed annuity sales for the first nine months were $61.7 billion, down 31%. Montminy said quantitative easing by the Federal Reserve will likely put further strain on fixed annuities by bringing interest rates down even further.

Meanwhile, variable annuity sales were up 9% to $102.8 billion in the first nine months of 2010 compared with flat 2009. “We saw a nice increase in the second quarter this year and remained steady in the third quarter as people got more comfortable with the market and with the long-term strength of carriers,” Montminy said. “Guaranteed-living-benefit election is extraordinarily high at 89%, which is enhancing their attractiveness. We expect continued slow, steady growth.”