Sales of fixed indexed annuities hit $16.2 billion in the second quarter of 2016, a 30 percent increase over the same period last year and an all-time quarterly record, according to LIMRA Secure Retirement Institute.

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For the first half to 2016, Fixed indexed annuity sales were $31.9 billion, a 32 percent increase of the first half of 2015. LIMRA is projecting fisales to exceed $60 billion for 2016.

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If that holds true, it will mark the eighth consecutive year of strong growth in fixed indexed annuity sales.

Todd Giesing, assistant research director for LIMRA's Secure Retirement Institute, said low interest rates have continued to benefit fixed index annuities as consumers seek “safe yield.”

“The indexed market is extremely competitive at this time as indexed products remain an attractive alternative to variable annuity products,” said Giesing.

As fixed indexed annuity sales have surged for most of the past decade, variable annuities have taken a hit.

Sales of variable products were down 25 percent in the second quarter of 2016, totaling $26.9 billion. For the first half of 2016, variable product sales were $53.5 billion, the worst performing first half of the year since 1998, and the first time sales of variable annuities have been below $30 billion for consecutive quarters since 2002, according to LIMRA.

Sales of FIAs expected to slow

The U.S. Department of Labor’s fiduciary rule is scheduled to have a two-tier phase in period.

Beginning April 10, 2017, all advisors to IRAs and defined contribution plans with less than $50 million in assets will be required to act as fiduciaries.

Full compliance with the rule will be phased in Jan. 1, 2018, when advisors recommending fixed indexed and variable annuities will have to comply with the rule’s Best Interest Contract Exemption, a legally binding contract between broker-dealers, insurance companies, advisory firms and investors that guarantees advisors are serving clients’ best interests when they recommend both fixed indexed and variable annuities.

Complying with the Best Interest Contract Exemption is expected to slow the surging sales of fixed indexed annuities. LIMRA is projecting a 30 to 35 percent decline in fixed indexed annuity sales in 2017, which would lower sales to 2013 levels, or around $40 billion.

Related: Advisors to 401(k) plans not recommending annuities

In 2015, about two thirds of fixed indexed annuity sales were through IRAs or rollovers from defined contribution accounts. Once the Labor Department rule is fully implemented, advisors will have to operate under the Best Interest Contract Exemption when recommending fixed indexed annuities and variable annuities, to assure recommendations of the products are in retirement investors’ best interests.

The “challenges” of complying with the Best Interest Contract Exemption will be the main source negatively impacting sales of fixed indexed annuities in 2017, said Giesing in a release.

Fee-based FIAs

Until recently, fixed indexed annuities have been exclusively sold on a commission basis.

That changed in December 2015, when Midland National began offering Prosper 5, which at the time was the only fee-based indexed annuity. The insurer is exclusively distributing Prosper 5 through broker-dealer Raymond James, according to information provided by Wink Inc., a third-party market research firm specializing in annuity and life insurance markets.

Last week, Great American Life announced a new fee-based fixed indexed annuity, the Index Protector 7, which the insurer said will be distributed through registered investment advisors who, as fiduciaries, already operate off of fee-based compensation models.

While the Labor Department rule does not ban the sale of commission-based investment, the preponderance of industry analysis has said the rule’s design strongly favors fee-based compensation models.

In a statement accompanying the launch of Index Protector 7, which is slated for August 22, 2016, Joe Maringer, a vice president at Great American Life, said the fee-based design is in direct response to the Labor Department’s fiduciary rule.

Related: Annuity innovation continues as industry braces for DOL fiduciary rule

“A product that fits into an advisory model based on fees rather than commissions is a relatively new development in the fixed-indexed annuity marketplace,” said Maringer.

“Due to the persistently low interest rate environment, advisors are seeking alternatives to the traditional fixed income portion of clients’ investment portfolios,” he added.

A request for comment from Great American Life on what the fee on the Index Protector 7 annuity will be was not returned.

But analysis provided by Wink said fee-based indexed annuities will take fees from the total assets under management of an investor’s advisory account, and not directly from the annuity.

Because insurers are not paying commissions directly to advisors, brokers, and insurance agents, the fee-based model will give insurers more latitude in product design, like building lower surrender chargers into the products, according to Wink’s analysis.

This summer, Voya Financial Inc. rolled out a new series of fixed indexed annuities featuring lower surrender fees, and the option to choose from a five, seven, or 10-year surrender contract schedule.

The new Voya Quest series is not being offered on a fee basis, but according to Wink, Voya, along with Allianz, Lincoln Financial Group and Symetra have confirmed they are working on fee-based fixed indexed annuities as well. Lincoln Financial has said its product will be distributed through the registered investment advisors, according to Wink.

Will fee-based FIAs stanch projected declines?

A representative from LIMRA said the institute’s economists accounted for potential product innovation when they projected next year’s 30 to 35 percent decline in fixed indexed annuity sales.

While next year will be tough for fixed indexed annuity sales, LIMRA is expecting a rebound in 2018. “With such substantial disruption to the market, our historical research shows there is always a transition window as manufacturers and distribution adapts,” according to representative from LIMRA.

In the run long, analysts at Wink expect sales of fixed indexed annuities to be strong. A company representative noted that commissions on fixed indexed annuities have been steadily dropping “for years,” as sales of fixed indexed annuities have hit new highs.

The Wink representative called the insurance industry “imaginative,” and noted that annuity providers have previously evolved in the face of a regulatory environment that “continues to hit our industry hard.”